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 June 30, 2021
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: (212) 804-3900
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 July 20, 2021, there were 82,442,291 shares of the registrant’s common stock, par value $0.01, outstanding.
FOR THE QUARTER ENDED JUNE 30, 2021
TABLE OF CONTENTS
Page
Part I – Financial Information
Item 1.
Financial Statements
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39
Item 4.
Controls and Procedures
40
Part II – Other Information
Legal Proceedings
41
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
42
2
AVAILABLE INFORMATION
Our corporate headquarters is located at 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, New York, 10007, and our telephone number is (212) 804-3900. We maintain a website on the internet at www.msci.com. The contents of our website are not a part of or incorporated by reference in this Quarterly Report on Form 10-Q.
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website that contains reports, proxy and information statements and other information that we file electronically with the SEC at www.sec.gov. We also make available free of charge, on or through our website, these reports, proxy statements and other information as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC. To access these, click on the “SEC Filings” link found on our Investor Relations homepage (http://ir.msci.com).
We also use our Investor Relations homepage, Corporate Responsibility homepage and corporate Twitter account (@MSCI_Inc) as channels of distribution of Company information. The information we post through these channels may be deemed material.
Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about us when you enroll your email address by visiting the “Email Alert Subscription” section of our Investor Relations homepage at http://ir.msci.com/alerts.cfm. The contents of our website, including our Investor Relations homepage, Corporate Responsibility homepage and social media channels are not, however, a part of or incorporated by reference in this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
We have included in this Quarterly Report on Form 10-Q, and from time to time may make in our public filings, press releases or other public statements, certain statements that constitute forward-looking statements. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only MSCI’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.
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. Statements concerning our financial position, business strategy and plans or objectives for future operations are forward-looking statements. 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 our actual results, levels of activity, performance or achievements. Such risks and uncertainties include those set forth under “Risk Factors” in Part I, Item 1A of the 2020 Annual Report on Form 10-K filed with the SEC on February 12, 2021. Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. The forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or for any other reason. Therefore, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the SEC.
3
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except per share and share data)
As of
June 30,
December 31,
2021
2020
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
1,972,002
1,300,521
Accounts receivable, net of allowances
488,570
558,569
Prepaid income taxes
57,638
20,097
Prepaid and other assets
40,333
46,411
Total current assets
2,558,543
1,925,598
Property, equipment and leasehold improvements, net
71,432
80,446
Right of use assets
146,070
153,330
Goodwill
1,566,612
1,566,022
Intangible assets, net
208,473
234,748
Equity method investment
187,452
190,898
Deferred tax assets
27,696
23,627
Other non-current assets
24,798
23,978
Total assets
4,791,076
4,198,647
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
11,253
14,253
Income taxes payable
32,308
26,195
Accrued compensation and related benefits
109,205
161,557
Other accrued liabilities
135,738
143,894
Deferred revenue
662,168
675,870
Total current liabilities
950,672
1,021,769
Long-term debt
3,963,622
3,366,777
Long-term operating lease liabilities
145,285
152,342
Deferred tax liabilities
8,347
12,774
Other non-current liabilities
90,957
88,219
Total liabilities
5,158,883
4,641,881
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; 133,142,605
and 132,829,175 common shares issued and 82,437,837 and 82,573,407 common
shares outstanding at June 30, 2021 and December 31, 2020, respectively)
1,331
1,328
Treasury shares, at cost (50,704,768 and 50,255,768 common shares held at June 30, 2021
and December 31, 2020, respectively)
(4,529,573
)
(4,342,535
Additional paid in capital
1,433,717
1,402,537
Retained earnings
2,785,727
2,554,295
Accumulated other comprehensive loss
(59,009
(58,859
Total shareholders' equity (deficit)
(367,807
(443,234
Total liabilities and shareholders' equity (deficit)
See Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended
Six Months Ended
Operating revenues
498,180
409,616
976,603
826,396
Operating expenses:
Cost of revenues
87,327
70,456
173,107
145,065
Selling and marketing
58,191
51,617
114,658
107,166
Research and development
27,531
22,534
52,393
49,096
General and administrative
30,182
28,309
64,910
59,142
Amortization of intangible assets
30,396
14,062
45,464
27,838
Depreciation and amortization of property, equipment and
leasehold improvements
7,020
7,463
14,163
15,030
Total operating expenses
240,647
194,441
464,695
403,337
Operating income
257,533
215,175
511,908
423,059
Interest income
(347
(771
(733
(4,254
Interest expense
39,557
41,227
77,141
81,458
Other expense (income)
22,628
35,552
23,777
43,839
Other expense (income), net
61,838
76,008
100,185
121,043
Income before provision for income taxes
195,695
139,167
411,723
302,016
Provision for income taxes
30,272
24,044
49,481
38,768
Net income
165,423
115,123
362,242
263,248
Earnings per basic common share
2.01
1.38
4.39
3.12
Earnings per diluted common share
1.99
1.36
4.34
3.10
Weighted average shares outstanding used in computing
earnings per share
Basic
82,454
83,666
82,546
84,268
Diluted
83,295
84,349
83,393
84,948
5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Other comprehensive (loss) income:
Foreign currency translation adjustments
879
1,562
(826
(10,801
Income tax effect
(35
(379
577
2,089
Foreign currency translation adjustments, net
844
1,183
(249
(8,712
Pension and other post-retirement adjustments
(59
(88
197
218
22
(98
Pension and other post-retirement adjustments, net
(37
(47
99
223
Other comprehensive (loss) income, net of tax
807
1,136
(150
(8,489
Comprehensive income
166,230
116,259
362,092
254,759
6
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
Accumulated
Additional
Other
Common
Treasury
Paid in
Retained
Comprehensive
Stock
Capital
Earnings
Income (Loss)
Total
Balance at December 31, 2020
196,819
Dividends declared ($0.78 per common share)
(65,947
Dividends paid in shares
66
Other comprehensive income (loss), net of tax
(957
Common stock issued
Shares withheld for tax withholding and exercises
(52,814
Compensation payable in common stock
18,842
Common stock repurchased and held in treasury
(134,340
Common stock issued to Directors and
(held in)/released from treasury
(20
Balance at March 31, 2021
(4,529,709
1,421,445
2,685,167
(59,816
(481,582
(64,863
20
(620
12,252
756
Balance at June 30, 2021
Balance at December 31, 2019
1,324
(3,565,784
1,351,031
2,199,294
(62,579
(76,714
148,125
Cumulative-effect adjustment
631
Dividends declared ($0.68 per common share)
(59,233
78
(9,625
Shares withheld for tax withholding
(47,195
15,333
(325,699
(36
Balance at March 31, 2020
(3,938,714
1,366,442
2,288,817
(72,204
(354,331
(57,360
36
(603
14,294
(31,071
1,844
Balance at June 30, 2020
(3,968,544
1,380,772
2,346,580
(71,068
(310,932
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense
30,856
29,265
Depreciation and amortization of property, equipment and leasehold improvements
Amortization of right of use assets
12,129
12,017
Amortization of debt origination fees
2,340
2,231
Loss on extinguishment of debt
21,792
44,930
Deferred taxes
(8,488
(9,844
Other adjustments
4,036
582
Changes in assets and liabilities:
Accounts receivable
69,119
32,131
(37,679
12,364
4,597
3,849
(5,211
(101
(50,793
(69,324
7,699
16,187
(10,359
(8,631
(12,668
14,818
(11,135
(11,615
2,410
411
Net cash provided by operating activities
440,514
375,386
Cash flows from investing activities
Acquisition of equity method investment
(190,816
Capitalized software development costs
(18,937
(14,761
Capital expenditures
(2,473
(7,597
(911
Net cash used in investing activities
(22,321
(213,174
Cash flows from financing activities
Proceeds from borrowings, inclusive of premium
1,103,750
1,405,000
Repayment of borrowings
(518,245
(1,142,382
Repurchase of common stock held in treasury
(187,774
(404,567
Payment of dividends
(130,557
(116,409
Payment of debt issuance costs in connection with debt
(10,316
(16,693
Net cash provided by (used in) financing activities
256,858
(275,051
Effect of exchange rate changes
(3,570
(8,751
Net increase (decrease) in cash
671,481
(121,590
Cash and cash equivalent, beginning of period
1,506,567
Cash and cash equivalent, end of period
1,384,977
Supplemental disclosure of cash flow information:
Cash paid for interest
77,076
90,623
Cash paid for income taxes, net of refunds received
83,139
19,560
Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements in other accrued liabilities
4,393
5,092
Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid
1,582
1,129
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTRODUCTION AND BASIS OF PRESENTATION
MSCI Inc., together with its wholly owned subsidiaries (the “Company” or “MSCI”) provides critical decision support tools and services that bring greater transparency to the global financial markets. MSCI’s tools and services include indexes; portfolio construction tools and risk-management services; environmental, social and governance (“ESG”) and climate solutions; and real estate benchmarks, return analytics services and market insights; much of which can be accessed by clients through multiple channels and platforms.
Basis of Presentation and Use of Estimates
These unaudited condensed consolidated financial statements include the accounts of MSCI and its wholly owned subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of June 30, 2021 and December 31, 2020, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 2021 and 2020. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2020 have been derived from the 2020 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for interim periods are not necessarily indicative of results for the entire year.
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require the Company to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of operating revenues and expenses during the periods presented. Significant estimates and assumptions made by management include the deferral and recognition of revenue, research and development and software capitalization, assessment of impairment of long-lived assets, accrued compensation, income taxes, incremental borrowing rates and other matters that affect the unaudited condensed consolidated financial statements and related disclosures. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Intercompany balances and transactions are eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the current period presentation. Effective January 1, 2021, the ESG and Climate operating segment is being presented as a separate reportable segment. The operating segments of Real Estate and The Burgiss Group, LLC (“Burgiss”) do not individually meet the segment reporting thresholds and have been combined and presented as part of the All Other – Private Assets reportable segment. The Company’s ownership interest in Burgiss, a global provider of investment decision tools for private capital, is classified as an equity-method investment. Therefore, the All Other – Private Assets segment does not include the Company’s proportionate share of operating revenues and Adjusted EBITDA related to Burgiss. The Company’s proportionate share of the income or loss from its equity method investment in Burgiss is not a component of Adjusted EBITDA as it is reported as a component of other (expense) income, net.
Concentrations
For the six months ended June 30, 2021 and 2020, BlackRock, Inc. accounted for 12.4% and 10.9% of the Company’s consolidated operating revenues, respectively. For the six months ended June 30, 2021 and 2020, BlackRock, Inc. accounted for 19.8% and 17.9% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics, ESG and Climate and All Other – Private Assets segments for the six months ended June 30, 2021 and 2020.
Allowance for Credit Losses on Accounts Receivable
Following the adoption of Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” effective beginning January 1, 2020, the Company records an allowance on customer accounts at the time of billing based on the estimated amount of the billing that will not be collected.
9
Changes in the allowance for credit losses on doubtful accounts receivable from December 31, 2019 to June 30, 2021 were as follows:
Amount
Balance as of December 31, 2019
1,715
Addition (reduction) to credit loss expense
1,712
Write-offs, net of recoveries
(1,844
Balance as of December 31, 2020
1,583
523
Adjustments and write-offs, net of recoveries
(389
Balance as of June 30, 2021
1,717
2. RECENT ACCOUNTING STANDARDS UPDATES
There are no pending accounting standards updates that are currently expected to have a material impact on the Company.
3. REVENUE RECOGNITION
MSCI’s revenues are characterized by product type, which broadly reflects the nature of how they are recognized. The Company’s revenue types are recurring subscription, asset-based fees and non-recurring revenues. The Company also reports revenues by segment.
The tables that follow present the disaggregated revenues for the periods indicated:
For the Three Months ended June 30, 2021
Segments
Index
Analytics
ESG and Climate
All Other - Private Assets
Revenue Types
Recurring subscriptions
160,061
133,368
38,567
16,134
348,130
Asset-based fees
136,142
Non-recurring
9,760
2,534
741
873
13,908
305,963
135,902
39,308
17,007
For the Six Months ended June 30, 2021
315,178
265,040
72,707
32,937
685,862
262,848
20,428
4,879
1,351
1,235
27,893
598,454
269,919
74,058
34,172
For the Three Months ended June 30, 2020
145,404
126,189
25,908
12,383
309,884
88,075
9,429
1,374
394
460
11,657
242,908
127,563
26,302
12,843
10
For the Six Months ended June 30, 2020
285,244
250,254
50,809
28,002
614,309
188,271
18,649
2,817
726
1,624
23,816
492,164
253,071
51,535
29,626
The tables that follow present the change in accounts receivable and in deferred revenue between the dates indicated:
Opening (December 31, 2020)
Closing (June 30, 2021)
Increase/(decrease)
(69,999
(13,702
Opening (December 31, 2019)
499,268
574,656
Closing (June 30, 2020)
466,096
587,113
(33,172
12,457
The amounts of revenue recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $208.3 million and $478.6 million for the three and six months ended June 30, 2021, respectively and $173.3 million and $385.6 million for the three and six months ended June 30, 2020, respectively. The difference between the opening and closing balances of the Company’s deferred revenue was primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. MSCI had an insignificant long-term deferred revenue balance as of June 30, 2021, reflected as a part of “Other non-current liabilities” on its Unaudited Condensed Consolidated Statement of Financial Condition.
For contracts that have a duration of one year or less, the Company has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:
First 12-month period
351,845
Second 12-month period
197,787
Third 12-month period
65,524
Periods thereafter
16,706
631,862
4. EARNINGS PER COMMON SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied the explicit vesting terms. Diluted EPS reflects the assumed conversion of all dilutive securities.
11
The following table presents the computation of basic and diluted EPS:
Basic weighted average common shares outstanding
Effect of dilutive securities:
Restricted stock units
841
683
847
680
Diluted weighted average common shares outstanding
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net consisted of the following as of the specified dates:
Computer & related equipment
183,893
186,786
Furniture & fixtures
14,988
15,276
Leasehold improvements
56,085
56,537
Work-in-process
2,810
2,996
Subtotal
257,776
261,595
Accumulated depreciation and amortization
(186,344
(181,149
Depreciation and amortization expense of property, equipment and leasehold improvements was $7.0 million and $7.5 million for the three months ended June 30, 2021 and 2020, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $14.2 million and $15.0 million for the six months ended June 30, 2021 and 2020, respectively.
6. GOODWILL AND INTANGIBLE ASSETS, NET
The following table presents goodwill by reportable segment:
Goodwill at December 31, 2020
1,205,758
290,976
48,047
21,241
Foreign exchange translation adjustment
365
225
590
Goodwill at June 30, 2021
1,206,123
21,466
12
Intangible Assets, Net
The following table presents the amount of amortization expense related to intangible assets by category for the periods indicated:
Amortization expense of acquired intangible assets
8,376
8,607
16,744
17,385
Amortization expense of internally developed
capitalized software
6,007
5,455
12,707
10,453
Write-off of internally developed
16,013
Total amortization of intangible assets expense
As a result of management’s decision to discontinue development and cease related sales activities of certain Analytics segment products and transition existing customers to other product offerings, the Company wrote off $16.0 million of certain internally developed capitalized software intangible assets (consisting of $46.3 million of gross intangible assets less $30.3 million of accumulated amortization) during the three months ended June 30, 2021. The non-cash charge is recorded as a component of “Amortization of intangible assets” on the Condensed Consolidated Statement of Income.
The gross carrying and accumulated amortization amounts related to the Company’s intangible assets were as follows:
Gross intangible assets:
Customer relationships
356,700
Trademarks
207,300
Acquired technology and software
177,720
Internally developed capitalized software
85,838
113,188
Proprietary data
28,627
856,185
883,535
(4,741
(5,262
Total gross intangible assets
851,444
878,273
Accumulated amortization:
(264,386
(253,465
(147,773
(143,207
(174,390
(174,032
(39,813
(57,464
(16,680
(15,730
(643,042
(643,898
71
373
Total accumulated amortization
(642,971
(643,525
Net intangible assets:
92,314
103,235
59,527
64,093
3,330
3,688
46,025
55,724
11,947
12,897
213,143
239,637
(4,670
(4,889
Total net intangible assets
13
The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2021 and succeeding years:
Years Ending December 31,
Amortization
Expense
Remainder of 2021
26,782
2022
51,146
2023
45,359
2024
37,892
2025
21,290
Thereafter
26,004
7. COMMITMENTS AND CONTINGENCIES
Senior Unsecured Notes. The Company had an aggregate of $4,000.0 million in senior unsecured notes (collectively, the “Senior Notes”) outstanding at June 30, 2021, as presented in the table below:
Principal
Outstanding
at
Carrying
Value at
Fair
Maturity Date
June 30, 2021
December 31, 2020
4.75% senior unsecured notes due 2026
August 1, 2026
-
496,257
522,325
5.375% senior unsecured notes due 2027
May 15, 2027
500,000
496,145
495,819
533,825
538,100
4.000% senior unsecured notes due 2029
November 15, 2029
1,000,000
990,910
990,364
1,056,210
1,073,040
3.625% senior unsecured notes due 2030
September 1, 2030
900,000
893,932
395,458
923,022
419,428
3.875% senior unsecured notes due 2031
February 15, 2031
989,426
988,879
1,039,070
1,063,430
3.625% senior unsecured notes due 2031
November 1, 2031
600,000
593,209
617,244
Total long-term debt
4,000,000
4,169,371
3,616,323
Interest payments attributable to the Senior Notes are due as presented in the following table:
First semi-annual interest
payment date
Second semi-annual
interest payment date
Senior Notes
February 1
August 1
May 15
November 15
March 1
September 1
June 1
December 1
May 1
November 1
The fair market value of the Company’s debt obligations represent Level 2 valuations. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values.
On March 26, 2021, the Company issued $500.0 million aggregate principal amount of 3.625% Senior Unsecured Notes due 2030 (the “2030 Senior Notes”), which constitute a further issuance of, are fully fungible with, rank equally with and form a single series with the $400.0 million aggregate principal amount of the 3.625% senior unsecured notes due 2030 issued on March 4, 2020. In connection with the completion of the offering, the Company announced that it intended to use a portion of the net proceeds from the offering, together with available cash, for the pre-maturity redemption or repurchase of all $500.0 million aggregate principal amount outstanding of its 4.750% senior unsecured notes due 2026 (the “2026 Senior Notes”). On April 12, 2021 the Company completed the pre-maturity redemption of all of its 2026 Senior Notes, which are reflected in the three months ended June 30, 2021. The pre-maturity redemption of the 2026 Senior Notes resulted in an approximately $21.8 million loss on extinguishment that was recorded in other expense (income) during the three months ended June 30, 2021, which includes an applicable premium of approximately $18.2 million (as set forth in the indenture governing the terms of the 2026 Senior Notes) and the write-off of approximately $3.6 million of unamortized debt issuance costs associated with the 2026 Senior Notes.
14
The 2030 Senior Notes are scheduled to mature and be paid in full on September 1, 2030. At any time prior to March 1, 2025, the Company may redeem all or part of the 2030 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2030 Senior Notes, together with accrued and unpaid interest, on or after March 1, 2025, at redemption prices set forth in the indenture governing the 2030 Senior Notes. At any time prior to March 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2030 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.625% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
On May 14, 2021, the Company issued $600.0 million aggregate principal amount of 3.625% Senior Unsecured Notes due 2031 (the “2031 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The 2031 Senior Notes are scheduled to mature and be paid in full on November 1, 2031. At any time prior to November 1, 2026, the Company may redeem all or part of the 2031 Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2031 Senior Notes, together with accrued and unpaid interest, on or after November 1, 2026, at redemption prices set forth in the indenture governing the 2031 Senior Notes. At any time prior to November 1, 2024, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2031 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.625% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
Revolver. Since November 20, 2014, the Company has maintained a revolving credit agreement with a syndicate of banks (as amended, the “Revolving Credit Agreement”). On March 29, 2021, the Company entered into Amendment No. 4 (the “Fourth Amendment”) to the Revolving Credit Agreement. The Fourth Amendment, among other things, (i) increased aggregate commitments available to be borrowed by $100.0 million to an aggregate of $500.0 million of availability thereunder until November 2024, at which point the aggregate commitments will be $467.5 million, and (ii) extended the term to March 2026. At June 30, 2021, the Revolving Credit Agreement was undrawn.
In connection with the closings of the Senior Notes offerings, entry into the Revolving Credit Agreement and the subsequent Amendments, the Company paid certain financing fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At June 30, 2021, $38.6 million of the deferred financing fees and premium remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.8 million of which is included in “Other non-current assets” and $36.3 million of which is included in “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.
8. LEASES
The Company recognized a total of $7.5 million and $8.9 million of operating lease expenses for the three months ended June 30, 2021 and 2020, respectively. The Company recognized a total of $15.1 million and $17.8 million of operating lease expenses for the six months ended June 30, 2021 and 2020, respectively. The amounts associated with variable lease costs, short-term lease costs and sublease income were not material for any of the three and six months ended June 30, 2021 and 2020.
Future minimum commitments for the Company’s operating leases in place as of June 30, 2021, the interest and other relevant line items in the Unaudited Condensed Consolidated Statement of Financial Condition are as follows:
Maturity of Lease Liabilities
Operating
Leases
13,158
26,672
25,535
20,231
19,755
88,328
Total lease payments
193,679
Less: Interest
(27,017
Present value of lease liabilities
166,662
21,377
15
Lease term and discount rate for the Company’s operating leases in place as of June 30, 2021 are as follows:
Lease Term and Discount Rate
Weighted-average remaining lease term (years)
8.68
Weighted-average discount rate
3.32
%
Other information for the Company’s operating leases in place for the six months ended June 30, 2021 are as follows:
Other Information
Operating cash flows used for operating leases
15,239
15,355
Leased assets obtained in exchange for new
operating lease liabilities
5,074
7,491
9. SHAREHOLDERS’ EQUITY (DEFICIT)
Return of capital
On October 29, 2020, the Board of Directors authorized a stock repurchase program for the purchase of up to $1,000.0 million worth of shares of MSCI’s common stock in addition to the $804.5 million of authorization then remaining under a previously existing share repurchase program (the “2020 Repurchase Program”) for a total of $1,804.5 million of stock repurchase authorization.
Share repurchases made pursuant to the 2020 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice. As of June 30, 2021, there was $1,594.4 million of available authorization remaining under the 2020 Repurchase Program.
The following table provides information with respect to repurchases of the Company’s common stock made on the open market:
Average
Price
Paid Per
Share
Number of
Shares
Repurchased
Dollar
Value of
407.70
330
134,340
June 30, 2020
250.65
1,423
356,770
The following table presents dividends declared per common share as well as total amounts declared, distributed and deferred for the periods indicated:
Dividends
(in thousands, except per share amounts)
Per Share
Declared
Distributed
(Released)/Deferred
Three Months Ended March 31,
0.78
65,947
66,153
(206
Three Months Ended June 30,
64,863
64,489
374
1.56
130,810
130,642
168
0.68
59,233
59,455
(222
57,360
57,068
292
116,593
116,523
70
16
Common Stock.
The following table presents activity related to shares of common stock issued and repurchased during the six months ended June 30, 2021:
Common Stock
Issued
132,829,175
(50,255,768
82,573,407
Dividend payable/paid
160
(48
112
301,227
(122,924
Shares repurchased under stock repurchase programs
(329,508
Shares issued to directors
133,130,562
(50,708,248
82,422,314
43
(43
10,692
(1,303
1,308
4,826
6,134
133,142,605
(50,704,768
82,437,837
10. INCOME TAXES
The Company’s provision for income taxes was $49.5 million and $38.8 million for the six months ended June 30, 2021 and 2020, respectively. These amounts reflect effective tax rates of 12.0% and 12.8% for the six months ended June 30, 2021 and 2020, respectively.
The effective tax rate of 12.0% for the six months ended June 30, 2021 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $34.2 million, in relation to pretax income. For the six months ended June 30, 2021, these discrete items primarily related to $21.4 million of excess tax benefits recognized on share-based compensation vested during the period and $5.6 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the 2026 Senior Notes. Also included in the discrete items is a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.1 million benefit related to the filing of prior year refund claims and $2.8 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings.
The effective tax rate of 12.8% for the six months ended June 30, 2020 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $34.1 million. For the six months ended June 30, 2020, these discrete items primarily related to $21.5 million of excess tax benefits recognized on share-based compensation vested during the period and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period. The discrete items also included a $0.8 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.
The Company is under examination by tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and India, and states in which the Company has significant operations, such as New York and California. The tax years currently under examination vary by jurisdiction but include years ranging from 2008 through 2020.
The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. During the six months ended June 30, 2021, the Company’s unrecognized tax benefits increased by $15.5 million principally due to the filing of prior year refund claims. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. Based on the current status of income tax audits, the Company believes it is reasonably possible that the total amount of unrecognized benefits may decrease by approximately $30.0 million in the next twelve months as a result of the resolution of tax examinations.
11. SEGMENT INFORMATION
The Company has five operating segments: Index, Analytics, ESG and Climate, Real Estate and Burgiss, which are presented as the following four reportable segments: Index, Analytics, ESG and Climate and All Other – Private Assets.
Effective January 1, 2021, the Company began presenting four reportable segments with the ESG and Climate operating segment being presented as a separate reportable segment. The operating segments of Real Estate and Burgiss do not individually
17
meet the segment reporting thresholds and have been combined and presented as part of All Other – Private Assets reportable segment. The Company’s ownership interest in Burgiss is classified as an equity-method investment. Therefore, the All Other – Private Assets segment does not include the Company’s proportionate share of operating revenues and Adjusted EBITDA related to Burgiss. The Company’s proportionate share of the income or loss from its equity-method investment in Burgiss is not a component of Adjusted EBITDA as it is reported as a component of other (expense) income, net. Prior period amounts have been recast to reflect the current presentation.
The Index operating segment offers equity and fixed income indexes. The indexes are used in many areas of the investment process, including index-linked product creation (e.g., Exchange Traded Funds (“ETFs”) and futures and options), performance benchmarking, portfolio construction and rebalancing, broker-dealer structured products and asset allocation.
The Analytics operating segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and an analysis of market, credit, liquidity and counterparty risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access Analytics content through MSCI’s own proprietary applications and application programming interfaces, third-party applications or directly through their own platforms. Additionally, the Analytics operating segment also provides various managed services to help clients operate more efficiently, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting.
The ESG and Climate operating segment offers products and services that help institutional investors understand how ESG and climate considerations can impact the long-term risk and return of their portfolio and individual security-level investments. In addition, MSCI ESG Research data and ratings, as well as climate solutions, are used in the construction of equity and fixed income indexes to help institutional investors more effectively benchmark ESG and climate investment performance, issue index-based investment products, as well as manage, measure and report on ESG and climate mandates.
The Real Estate operating segment offers research, reporting, market data and benchmarking offerings that provide real estate performance analysis for funds, investors and managers. Real Estate performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Estate operating segment also provides business intelligence to real estate owners, managers, developers and brokers worldwide.
The Burgiss operating segment represents the Company’s equity method investment in Burgiss, a global provider of investment decision support tools for private capital.
The change in reportable segments has not resulted in any changes to MSCI’s Chief Operating Decision Maker (“CODM”) or the basis for segment profitability from the information disclosed in our 2020 Annual Report on Form 10-K. The CODM continues to measure and evaluate reportable segments based on segment operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment Adjusted EBITDA, they are included in reported consolidated net income and are included in the reconciliation that follows.
The following table presents operating revenues by reportable segment for the periods indicated:
18
The following table presents segment profitability and a reconciliation to net income for the periods indicated:
Index Adjusted EBITDA
233,468
183,256
453,347
366,843
Analytics Adjusted EBITDA
49,814
46,167
95,545
82,484
ESG and Climate Adjusted EBITDA
5,720
5,499
10,765
9,125
All Other - Private Assets Adjusted EBITDA
5,947
1,778
11,878
7,475
Total operating segment profitability
294,949
236,700
571,535
465,927
Depreciation and amortization of property,
equipment and leasehold improvements
Operating revenues by geography are based on the shipping address of the ultimate customer utilizing the product. The following table presents revenue by geographic area for the periods indicated:
Americas:
United States
200,781
175,819
397,470
356,865
21,026
16,891
41,199
34,647
Total Americas
221,807
192,710
438,669
391,512
Europe, the Middle East and Africa ("EMEA"):
United Kingdom
84,802
62,826
163,883
127,887
113,258
90,209
219,452
178,138
Total EMEA
198,060
153,035
383,335
306,025
Asia & Australia:
Japan
22,993
19,725
44,635
39,117
55,320
44,146
109,964
89,742
Total Asia & Australia
78,313
63,871
154,599
128,859
19
Long-lived assets consist of property, equipment and leasehold improvements, right of use assets and internally developed capitalized software, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated:
Long-lived assets
161,363
182,776
14,739
13,949
176,102
196,725
EMEA:
19,596
19,678
32,720
33,561
52,316
53,239
1,471
1,896
33,934
37,946
35,405
39,842
263,823
289,806
12. SUBSEQUENT EVENTS
On July 26, 2021, the Board of Directors declared a quarterly cash dividend of $1.04 per share for the three months ending September 30, 2021 (“third quarter 2021”). The third quarter 2021 dividend is payable on August 31, 2021 to shareholders of record as of the close of trading on August 13, 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A.—Risk Factors,” in our Form 10-K.
Except as the context otherwise indicates, the terms “MSCI,” the “Company,” “we,” “our” and “us” refer to MSCI Inc., together with its subsidiaries.
Overview
We are a leading provider of critical decision support tools and services for the global investment community. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, our actionable solutions power better investment decisions by enabling our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios.
Investors all over the world use our tools and services to gain insight and improve transparency throughout their investment processes, including to help define their investment universe, inform and analyze their asset allocation and portfolio construction decisions, measure and manage portfolio performance and risk, conduct performance attribution, implement sustainable and other investment strategies, design and issue ETFs and other indexed financial products, and facilitate reporting to stakeholders.
Our leading research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG and climate solutions; and real estate benchmarks, return-analytics and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients’ dynamic and complex needs. Our content and capabilities can be accessed by our clients through multiple channels and platforms.
We are focused on product innovation to address the evolving needs of our clients in light of changing investment trends and an increasingly complex industry. In order to most effectively serve our clients, we are committed to driving an integrated solutions-based approach, achieving service excellence, enhancing our differentiated research and content, and delivering flexible, cutting-edge technology and platforms.
Our clients comprise a wide spectrum of the global investment industry and include the following key client types:
•
Asset owners (pension funds, endowments, foundations, central banks, sovereign wealth funds, family offices and insurance companies)
Asset managers (institutional funds and accounts, mutual funds, hedge funds, ETFs, insurance products, private banks and real estate investment trusts)
Financial intermediaries (banks, broker-dealers, exchanges, custodians, trust companies and investment consultants)
Wealth managers (including robo-advisors and self-directed brokerages)
Corporates
As of June 30, 2021, we served over 4,4001 clients in more than 90 countries. As of June 30, 2021, we had offices in more than 30 cities across more than 20 countries to help serve our diverse client base, with 44.9% of our revenues coming from clients in the Americas, 39.3% in EMEA and 15.8% in Asia and Australia.
Our principal business model is generally to license annual, recurring subscriptions for the majority of our Index, Analytics and ESG and Climate products and services for a fee due in advance of the service period. We also license annual recurring subscriptions for the majority of our Real Estate products for a fee which is primarily paid in arrears after the product is delivered, with the exception of the Market Information product for which the fees are generally paid in advance. A portion of our fees comes from clients who use our indexes as the basis for index-linked investment products. Such fees are primarily based on a client’s assets under management (“AUM”), trading volumes and fee levels.
1
Represents the aggregate of all related clients under their respective parent entity.
In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under accounting principles generally accepted in the United States (“GAAP”) as well as non-GAAP measures, for the Company as a whole and by operating segment. In addition, we focus on operating metrics, including Run Rate, subscription sales and Retention Rate, to manage the business. Our business is not highly capital intensive and, as such, we expect to continue to convert a high percentage of our profits into excess cash in the future. Our growth strategy includes: (a) extending leadership in research-enhanced content across asset classes, (b) enhancing distribution and content-enabling technology, (c) expanding solutions that empower client customization, (d) strengthening existing and developing new client relationships and (e) executing strategic relationships and acquisitions with complementary content and technology companies.
In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period. While operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations, the underlying AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. More than three-fifths of the AUM is invested in securities denominated in currencies other than the U.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency-adjusted variances.
The discussion of our results of operations for the three and six months ended June 30, 2021 and 2020 are presented below. The results of operations for interim periods may not be indicative of future results.
Results of Operations
The following table presents the results of operations for the periods indicated:
% Change
21.6
18.2
23.9
19.3
12.7
7.0
22.2
6.7
6.6
9.8
116.2
63.3
(5.9
%)
(5.8
23.8
15.2
19.7
21.0
(18.6
(17.2
40.6
36.3
25.9
27.6
43.7
37.6
45.7
40.7
46.3
40.0
Operating margin
51.7
52.5
52.4
51.2
Operating Revenues
Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics, ESG and Climate and All Other – Private Assets, which includes the Real Estate product line.
The following table presents operating revenues by type for the periods indicated:
12.3
11.6
54.6
39.6
17.1
Total operating revenues
Total operating revenues for the three months ended June 30, 2021 increased 21.6% to $498.2 million compared to $409.6 million for the three months ended June 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 20.6% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 18.2%, growing to $976.6 million compared to $826.4 million for the six months ended June 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 17.3% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Operating revenues from recurring subscriptions for the three months ended June 30, 2021 increased 12.3% to $348.1 million compared to $309.9 million for the three months ended June 30, 2020, primarily driven by growth in Index products, which increased $14.7 million, or 10.1%, strong growth in ESG and Climate products, which increased $12.7 million, or 48.9%, and growth in Analytics products, which increased $7.2 million, or 5.7%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 11.0% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 11.6%, growing to $685.9 million compared to $614.3 million for the six months ended June 30, 2020, primarily driven by growth in Index products, which increased $29.9 million, or 10.5%, strong growth in ESG and Climate products, which increased $21.9 million, or 43.1%, and growth in Analytics products, which increased $14.8 million, or 5.9%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 10.5% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Operating revenues from asset-based fees for the three months ended June 30, 2021 increased 54.6% to $136.1 million compared to $88.1 million for the three months ended June 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 66.4% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked to MSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
For the six months ended June 30, 2021, revenues from asset-based fees increased 39.6% to $262.8 million compared to $188.3 million for the six months ended June 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 48.8% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked to MSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
The following table presents the value of AUM in ETFs linked to MSCI equity indexes and the sequential change of such assets as of the end of each of the periods indicated:
Period Ended
(in billions)
March
31,
June
30,
September
December
AUM in ETFs linked to MSCI equity indexes(1), (2)
709.5
825.4
908.9
1,103.6
1,209.6
1,336.2
Sequential Change in Value
Market Appreciation/(Depreciation)
(216.5
117.4
57.0
135.7
43.2
73.7
Cash Inflows
(8.4
(1.5
26.5
59.0
62.8
52.9
Total Change
(224.9
115.9
83.5
194.7
106.0
126.6
23
The following table presents the average value of AUM in ETFs linked to MSCI equity indexes for the periods indicated:
Quarterly average
877.1
776.9
893.4
999.2
1,169.2
1,292.4
Year-to-date average
827.0
849.1
886.7
1,230.8
(1)
The historical values of the AUM in ETFs linked to our equity indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in ETFs Linked to MSCI Equity Indexes” on our Investor Relations homepage at http://ir.msci.com. This information is updated mid-month each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any other report filed with the SEC. The AUM in ETFs also includes AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.
(2)
The value of AUM in ETFs linked to MSCI equity indexes is calculated by multiplying the equity ETF net asset value by the number of shares outstanding.
The average value of AUM in ETFs linked to MSCI equity indexes for the three months ended June 30, 2021 was $1,292.4 billion, up $515.5 billion, or 66.4%, from $776.9 billion for the three months ended June 30, 2020. For the six months ended June 30, 2021, it was $1,230.8 billion, up $403.8 billion, or 48.8%, from $827.0 billion for the six months ended June 30, 2020.
The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
Operating revenues:
10.1
10.5
3.5
9.5
Index total
26.0
5.7
5.9
84.4
73.2
Analytics total
6.5
48.9
43.1
88.1
86.1
ESG and Climate total
49.4
30.3
17.6
89.8
(24.0
All Other - Private Assets total
32.4
15.3
Refer to the section titled "Segment Results" that follows for further discussion of segment revenues.
Operating Expenses
We group our operating expenses into the following activity categories:
Cost of revenues;
Selling and marketing;
Research and development (“R&D”);
General and administrative (“G&A”);
24
Amortization of intangible assets; and
Depreciation and amortization of property, equipment and leasehold improvements.
Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.
The following table presents operating expenses by activity category for the periods indicated:
Total operating expenses for the three months ended June 30, 2021 increased 23.8% to $240.6 million compared to $194.4 million for the three months ended June 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 20.0% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 15.2%, growing to $464.7 million compared to $403.3 million for the six months ended June 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 12.4% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Cost of Revenues
Cost of revenues expenses consist of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, cloud service, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support and maintain existing products; costs of product management teams; costs of client service and consultant teams to support customer needs; as well as other support costs directly attributable to the cost of revenues including certain human resources, finance and legal costs.
Cost of revenues for the three months ended June 30, 2021 increased 23.9% to $87.3 million compared to $70.5 million for the three months ended June 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries, incentive compensation and benefits costs, as well as higher non-compensation costs, reflecting higher professional fees, information technology costs and market data costs.
For the six months ended June 30, 2021, the increase was 19.3%, growing to $173.1 million compared to $145.1 million for the six months ended June 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and incentive compensation, as well as higher non-compensation costs, reflecting higher professional fees, information technology costs and market data costs.
Selling and Marketing
Selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations.
Selling and marketing expenses for the three months ended June 30, 2021 increased 12.7% to $58.2 million compared to $51.6 million for the three months ended June 30, 2020, primarily driven by higher costs in the Index, ESG and Climate and Analytics reportable segments. The change was driven by increases in compensation and benefits costs, including higher incentive compensation and wages and salaries, as well as higher non-compensation costs, primarily relating to higher information technology costs and recruiting costs.
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For the six months ended June 30, 2021, the increase was 7.0%, growing to $114.7 million compared to $107.2 million for the six months ended June 30, 2020, primarily driven by higher costs in the ESG and Climate and Index reportable segments. The change was driven by increases in compensation and benefits costs, including incentive compensation, wages and salaries and benefits costs, partially offset by decreases in non-compensation costs, primarily relating to lower travel and entertainment costs and marketing costs.
Research and Development
R&D expenses consist of the costs to develop new or enhance existing products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support associated with these efforts.
R&D expenses for the three months ended June 30, 2021 increased 22.2% to $27.5 million compared to $22.5 million for the three months ended June 30, 2020, reflecting higher investment in the ESG and Climate and Index reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, benefits costs and wages and salaries.
For the six months ended June 30, 2021, the increase was 6.7%, growing to $52.4 million compared to $49.1 million for the six months ended June 30, 2020, reflecting higher investment in the ESG and Climate and Index reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation and benefits costs, partially offset by lower wages and salaries.
General and Administrative
G&A expenses consist of costs primarily related to finance operations, human resources, office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service.
G&A expenses for the three months ended June 30, 2021 increased 6.6% to $30.2 million compared to $28.3 million for the three months ended June 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs, recruiting costs, other tax expenses, insurance costs and personnel related costs.
For the six months ended June 30, 2021, the increase was 9.8%, growing to $64.9 million compared to $59.1 million for the six months ended June 30, 2020, reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and incentive compensation, as well as higher non-compensation costs, including information technology costs and insurance costs.
The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated:
Compensation and benefits
148,180
128,803
15.0
299,697
266,065
12.6
Non-compensation expenses
55,051
44,113
24.8
105,371
94,404
Compensation and Benefits
Compensation and benefits costs are our most significant expense and typically represent approximately 65% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 3,910 and 3,513 employees as of June 30, 2021 and 2020, respectively, reflecting a 11.3% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses. As of June 30, 2021, 65.9% of our employees were located in emerging market centers compared to 63.7% as of June 30, 2020.
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Compensation and benefits costs for the three months ended June 30, 2021 increased 15.0% to $148.2 million compared to $128.8 million for the three months ended June 30, 2020, driven by higher wages and salaries, incentive compensation and benefits costs, partially offset by lower severance costs.
For the six months ended June 30, 2021, the increase was 12.6%, growing to $299.7 million compared to $266.1 million for the six months ended June 30, 2020, driven by higher incentive compensation, wages and salaries and benefits costs, partially offset by lower severance costs.
A significant portion of the incentive compensation component of operating expenses is based on the achievement of a number of financial and operating metrics. In a scenario where operating revenue growth and profitability moderate, incentive compensation would be expected to decrease accordingly.
Non-Compensation Expenses
Non-compensation expenses for the three months ended June 30, 2021 increased 24.8% to $55.1 million compared to $44.1 million for the three months ended June 30, 2020, primarily driven by higher information technology costs, professional fees, market data costs and recruiting costs.
For the six months ended June 30, 2021, the increase was 11.6%, growing to $105.4 million compared to $94.4 million for the six months ended June 30, 2020, primarily driven by higher information technology costs, professional fees and market data costs, partially offset by lower travel and entertainment costs.
Fixed costs constitute a significant portion of the non-compensation component of operating expenses. The discretionary non-compensation component of operating expenses could, however, be reduced in the near-term in a scenario where operating revenue growth moderates.
Amortization of Intangible Assets
Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects recognized over their estimated useful lives. Amortization of intangible assets expense for the three months ended June 30, 2021 increased 116.2% to $30.4 million compared to $14.1 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, amortization of intangible assets expense increased 63.3% to $45.5 million compared to $27.8 million for the six months ended June 30, 2020. The increase in both the three and six months ended June 30, 2021, was primarily driven by a write-off of $16.0 million of certain internally developed capitalized software intangible assets as a result of management’s decision during the three months ended June 30, 2021 to discontinue development and cease related sales activities of certain Analytics segment products and transition existing customers to other product offerings.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements consists of expenses related to depreciating or amortizing the cost of furniture and fixtures, computer and related equipment and leasehold improvements over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements for the three months ended June 30, 2021 decreased 5.9% to $7.0 million compared to $7.5 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, depreciation and amortization of property, equipment and leasehold improvements decreased 5.8% to $14.2 million compared to $15.0 million for the six months ended June 30, 2020. The decrease in both the three and six months ended June 30, 2021, was primarily the result of lower depreciation on software, computer and related equipment and leasehold improvements.
Other Expense (Income), Net
Other expense (income), net for the three months ended June 30, 2021 decreased 18.6% to $61.8 million compared to $76.0 million for the three months ended June 30, 2020. The decrease in net expenses was primarily driven by the absence of the $35.0 million loss on debt extinguishment associated with the redemption of all of the $800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025 that remained outstanding (the “2025 Senior Notes Redemption”) during the three months ended June 30, 2020. This was partially offset by the $21.8 million loss on debt extinguishment associated with the redemption of all of the $500.0 million aggregate principal amount of the 2026 Senior Notes that remained outstanding (the “2026 Senior Notes Redemption”) during the three months ended June 30, 2021. The loss on debt extinguishment associated with the 2026 Senior Notes Redemption included an applicable premium of approximately $18.2 million (as set forth in the indenture governing the terms of the 2026 Senior Notes) and the write-off of approximately $3.6 million of unamortized debt issuance costs associated with the 2026 Senior Notes.
For the six months ended June 30, 2021, it decreased 17.2% to $100.2 million compared to $121.0 million for the six months ended June 30, 2020. The decrease in net expenses was primarily driven by the absence of the $35.0 million and $10.0 million loss on debt extinguishment associated with the 2025 Senior Notes Redemption and the redemption of all of the $300.0 million aggregate principal amount of 5.250% senior unsecured notes due 2024 that remained outstanding (the “2024 Senior Notes Redemption”) during
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the six months ended June 30, 2020, respectively. This was partially offset by the $21.8 million loss on debt extinguishment associated with the 2026 Senior Notes Redemption during the six months ended June 30, 2021.
Income Taxes
The Company’s provision for income taxes for the three months ended June 30, 2021 and 2020 was $30.3 million and $24.0 million, respectively. These amounts reflect effective tax rates of 15.5% and 17.3% for the three months ended June 30, 2021 and 2020, respectively.
The effective tax rate of 15.5% for the three months ended June 30, 2021 reflects the Company’s estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling $11.9 million. For the three months ended June 30, 2021, these discrete items primarily related to the $5.6 million tax impact of loss on debt extinguishment recognized during the period on the 2026 Senior Notes Redemption. Also included in the discrete items is a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.1 million benefit related to the filing of prior year refund claims, $1.0 million of excess tax benefits recognized on share-based compensation vested during the period and $0.9 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings.
The effective tax rate of 17.3% for the three months ended June 30, 2020 reflects the Company’s estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling $11.7 million. For the three months ended June 30, 2020, these discrete items primarily related to the $9.0 million tax impact of loss on debt extinguishment recognized during the period on the 2025 Senior Notes Redemption and $2.3 million of excess tax benefits recognized on share-based compensation vested during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.
The Company’s provision for income taxes for the six months ended June 30, 2021 and 2020 was $49.5 million and $38.8 million, respectively. These amounts reflect effective tax rates of 12.0% and 12.8% for the six months ended June 30, 2021 and 2020, respectively.
The effective tax rate of 12.0% for the six months ended June 30, 2021 reflects the Company’s estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling $34.2 million, in relation to pretax income. For the six months ended June 30, 2021, these discrete items primarily related to $21.4 million of excess tax benefits recognized on share-based compensation vested during the period and $5.6 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2026 Senior Notes Redemption. Also included in the discrete items is a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.1 million benefit related to the filing of prior year refund claims and $2.8 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings.
The effective tax rate of 12.8% for the six months ended June 30, 2020 reflects the Company’s estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling $34.1 million. For the six months ended June 30, 2020, these discrete items primarily related to $21.5 million of excess tax benefits recognized on share-based compensation vested during the period and $11.5 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2024 Senior Notes Redemption and 2025 Senior Notes Redemption. The discrete items also included a $0.8 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.
Net Income
As a result of the factors described above, net income for the three months ended June 30, 2021 increased 43.7% to $165.4 million compared to $115.1 million for the three months ended June 30, 2020 and for the six months ended June 30, 2021, it increased 37.6% to $362.2 million compared to $263.2 million for the six months ended June 30, 2020.
Weighted Average Shares
The weighted average shares outstanding used to calculate basic and diluted earnings per share for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 decreased by 1.4% and 1.2%, respectively. For the six months ended June 30, 2021, the weighted average shares outstanding used to calculate basic and diluted earnings per share compared to the six months ended June 30, 2020 decreased by 2.0% and 1.8%, respectively. The decrease in both the three and six months ended June 30, 2021, primarily reflect the impact of share repurchases made pursuant to the stock repurchase program.
Adjusted EBITDA
“Adjusted EBITDA,” a non-GAAP measure used by management to assess operating performance, is defined as net income before (1) provision for income taxes, (2) other expense (income), net, (3) depreciation and amortization of property, equipment and leasehold improvements, (4) amortization of intangible assets and, at times, (5) certain other transactions or adjustments.
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“Adjusted EBITDA expenses,” a non-GAAP measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments.
Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be the Company’s ongoing operating performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.
The following table presents the calculation of Adjusted EBITDA for the periods indicated:
Adjusted EBITDA expenses
203,231
172,916
17.5
405,068
360,469
12.4
24.6
22.7
Adjusted EBITDA margin %
59.2
57.8
58.5
56.4
Operating margin %
Adjusted EBITDA for the three months ended June 30, 2021 increased 24.6% to $294.9 million compared to $236.7 million for the three months ended June 30, 2020. Adjusted EBITDA margin for the three months ended June 30, 2021 increased to 59.2% compared to 57.8% for the three months ended June 30, 2020. For the six months ended June 30, 2021, Adjusted EBITDA increased 22.7% to $571.5 million compared to $465.9 million for the six months ended June 30, 2020. For the six months ended June 30, 2021, Adjusted EBITDA margin increased to 58.5% compared to 56.4% for the six months ended June 30, 2020. The increase in Adjusted EBITDA margin for both the three and six months ended June 30, 2021, reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses.
Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses
The following table presents the reconciliation of Adjusted EBITDA to net income for the periods indicated:
Consolidated Adjusted EBITDA
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The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
Index Adjusted EBITDA expenses
72,495
59,652
145,107
125,321
Analytics Adjusted EBITDA expenses
86,088
81,396
174,374
170,587
expenses
33,588
20,803
63,293
42,410
11,060
11,065
22,294
22,151
Consolidated Adjusted EBITDA expenses
The discussion of the segment results is presented below.
Segment Results
Index Segment
The following table presents the results for the Index segment for the periods indicated:
Operating revenues total
21.5
15.8
27.4
23.6
76.3
75.4
75.8
74.5
Revenues related to Index products for the three months ended June 30, 2021 increased 26.0% to $306.0 million compared to $242.9 million for the three months ended June 30, 2020 and for the six months ended June 30, 2021, the increase was 21.6%, growing to $598.5 million compared to $492.2 million for the six months ended June 30, 2020
Recurring subscriptions for the three months ended June 30, 2021 increased 10.1% to $160.1 million compared to $145.4 million for the three months ended June 30, 2020. The increase was primarily driven by strong contributions from factors, ESG and climate index products and continued contribution from market cap-weighted index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.
For the six months ended June 30, 2021, the increase was 10.5%, growing to $315.2 million compared to $285.2 million for the six months ended June 30, 2020. The increase was primarily driven by continued contribution from market cap-weighted index products and strong contributions from factors, ESG and climate index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.
Revenues from asset-based fees for the three months ended June 30, 2021 increased 54.6% to $136.1 million compared to $88.1 million for the three months ended June 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 66.4% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked to MSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
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For the six months ended June 30, 2021, the increase was 39.6%, growing to $262.8 million compared to $188.3 million for the six months ended June 30, 2020. The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked to MSCI equity indexes that was primarily driven by a 48.8% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked to MSCI indexes, primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked to MSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible.
Index segment Adjusted EBITDA expenses for the three months ended June 30, 2021 increased 21.5% to $72.5 million compared to $59.7 million for the three months ended June 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 17.3% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 15.8%, growing to $145.1 million compared to $125.3 million for the six months ended June 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 12.6% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Analytics Segment
The following table presents the results for the Analytics segment for the periods indicated:
5.8
2.2
7.9
36.7
36.2
35.4
32.6
Analytics segment revenues for the three months ended June 30, 2021 increased 6.5% to $135.9 million compared to $127.6 million for the three months ended June 30, 2020, primarily driven by growth in Equity and Multi-Asset Class Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.
For the six months ended June 30, 2021, the increase was 6.7%, growing to $269.9 million compared to $253.1 million for the six months ended June 30, 2020, primarily driven by growth in Multi-Asset Class and Equity Analytics products. The impact of foreign currency exchange rate fluctuations on Analytics segment revenues was negligible.
Analytics segment Adjusted EBITDA expenses for the three months ended June 30, 2021 increased 5.8% to $86.1 million compared to $81.4 million for the three months ended June 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 2.6% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 2.2%, growing to $174.4 million compared to $170.6 million for the six months ended June 30, 2020, primarily driven by higher expenses across the cost of revenues and G&A expense activity categories, partially offset by lower expense across the R&D expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, it would have been flat for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
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ESG and Climate Segment
The following table presents the results for the ESG and Climate segment for the periods indicated:
61.5
49.2
4.0
18.0
14.6
20.9
14.5
17.7
ESG and Climate segment revenues for the three months ended June 30, 2021 increased 49.4% to $39.3 million compared to $26.3 million for the three months ended June 30, 2020. The increase in ESG and Climate revenues was primarily driven by strong growth from Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 38.9%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 43.7%, growing to $74.1 million compared to $51.5 million for the six months ended June 30, 2020. The increase in ESG and Climate revenues was primarily driven by strong growth from Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 35.4%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
ESG and Climate segment Adjusted EBITDA expenses for the three months ended June 30, 2021 increased 61.5% to $33.6 million compared to $20.8 million for the three months ended June 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 55.4% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 49.2%, growing to $63.3 million compared to $42.4 million for the six months ended June 30, 2020, reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 44.5% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
All Other – Private Assets Segment
The following table presents the results for the All Other – Private Assets segment for the periods indicated:
(0.0
0.6
234.5
58.9
35.0
13.8
34.8
25.2
All Other – Private Assets segment revenues for the three months ended June 30, 2021 increased 32.4% to $17.0 million compared to $12.8 million for the three months ended June 30, 2020. The increase in All Other – Private Assets revenues was primarily driven by strong growth in Enterprise Analytics products and favorable foreign currency exchange rate fluctuations. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 20.3% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 15.3%, growing to $34.2 million compared to $29.6 million for the six months ended June 30, 2020. The increase in All Other – Private Assets revenues was primarily driven by favorable foreign currency exchange rate fluctuations and strong growth in Enterprise Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 5.6% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
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All Other – Private Assets segment Adjusted EBITDA expenses for the three months ended June 30, 2021 remained flat at $11.1 million compared to the three months ended June 30, 2020, driven by lower expenses across the R&D and selling and marketing expense activity categories, offset by higher expenses across the cost of revenues and G&A expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other – Private Assets segment Adjusted EBITDA expenses would have decreased 6.3% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was 0.6%, growing to $22.3 million compared to $22.2 million for the six months ended June 30, 2020, driven by higher expenses across the cost of revenues and G&A expense activity categories, partially offset by lower expenses across the R&D and selling and marketing expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other – Private Assets segment Adjusted EBITDA expenses would have decreased 4.2% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Run Rate
“Run Rate” estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements (“Client Contracts”) for the next 12 months, assuming all Client Contracts that come up for renewal are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product’s assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets. Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we add to Run Rate the annualized fee value of recurring new sales, whether to existing or new clients, when we execute Client Contracts, even though the license start date, and associated revenue recognition, may not be effective until a later date. We remove from Run Rate the annualized fee value associated with products or services under any Client Contract with respect to which we have received a notice of termination or non-renewal during the period and have determined that such notice evidences the client’s final decision to terminate or not renew the applicable products or services, even though such notice is not effective until a later date.
Changes in our recurring revenues typically lag changes in Run Rate. The actual amount of recurring revenues we will realize over the following 12 months will differ from Run Rate for numerous reasons, including:
fluctuations in revenues associated with new recurring sales;
modifications, cancellations and non-renewals of existing Client Contracts, subject to specified notice requirements;
differences between the recurring license start date and the date the Client Contract is executed due to, for example, contracts with onboarding periods or fee waiver periods;
fluctuations in asset-based fees, which may result from changes in certain investment products’ total expense ratios, market movements, including foreign currency exchange rates, or from investment inflows into and outflows from investment products linked to our indexes;
fluctuations in fees based on trading volumes of futures and options contracts linked to our indexes;
fluctuations in the number of hedge funds for which we provide investment information and risk analysis to hedge fund investors;
price changes or discounts;
revenue recognition differences under U.S. GAAP, including those related to the timing of implementation and report deliveries for certain of our products and services;
fluctuations in foreign currency exchange rates; and
the impact of acquisitions and divestitures.
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The following table presents the Run Rates as of the dates indicated and the growth percentages over the periods indicated:
Change
Index:
653,448
586,846
11.3
539,984
362,049
49.1
1,193,432
948,895
25.8
563,938
534,039
5.6
164,092
113,662
44.4
58,088
50,715
Total Run Rate
1,979,550
1,647,311
20.2
Recurring subscriptions total
1,439,566
1,285,262
12.0
Total Run Rate grew 20.2% to $1,979.6 million as of June 30, 2021 compared to $1,647.3 million as of June 30, 2020. Recurring subscriptions Run Rate grew 12.0% to $1,439.6 million as of June 30, 2021 compared to $1,285.3 million as of June 30, 2020. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions Run Rate would have increased 11.3% as of June 30, 2021 compared to June 30, 2020.
Run Rate from asset-based fees increased 49.1% to $540.0 million as of June 30, 2021 from $362.0 million as of June 30, 2020, primarily driven by higher AUM in ETFs linked to MSCI equity indexes, higher AUM and new client agreements in non-ETF indexed funds linked to MSCI indexes and higher fees in exchange traded futures and options contracts linked to MSCI indexes. Partially offsetting the impact of the increase in AUM in ETFs linked to MSCI equity indexes was a change in fee levels of certain products, which was the primary driver of a decline in average basis point fees to 2.58 as of June 30, 2021 from 2.67 as of June 30, 2020. As of June 30, 2021, the value of AUM in ETFs linked to MSCI equity indexes was $1,336.2 billion, up $510.8 billion, or 61.9%, from $825.4 billion as of June 30, 2020. The increase of $510.8 billion consisted of market appreciation of $309.6 billion and net inflows of $201.2 billion.
Index recurring subscriptions Run Rate grew 11.3% to $653.4 million as of June 30, 2021 compared to $586.8 million as of June 30, 2020, primarily driven by growth in market cap-weighted index products and reflected growth across all regions and all client segments.
Run Rate from Analytics products increased 5.6% to $563.9 million as of June 30, 2021 compared to $534.0 million as of June 30, 2020, primarily driven by growth in both Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 5.0% as of June 30, 2021.
Run Rate from ESG and Climate products increased 44.4% to $164.1 million as of June 30, 2021 compared to $113.7 million as of June 30, 2020, primarily driven by strong growth in both Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate Run Rate would have increased 41.7% as of June 30, 2021 compared to June 30, 2020.
Run Rate from All Other – Private Assets products increased 14.5% to $58.1 million as of June 30, 2021 compared to $50.7 million as of June 30, 2020, primarily driven by strong growth in both Enterprise Analytics and Global Intel products and growth from new sales of Real Estate Climate Value-at-Risk products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other – Private Assets Run Rate would have increased 7.9% as of June 30, 2021 compared to June 30, 2020.
Sales
Sales represents the annualized value of products and services clients commit to purchase from MSCI and will result in additional operating revenues. Non-recurring sales represent the actual value of the customer agreements entered into during the period and are not a component of Run Rate. New recurring subscription sales represent additional selling activities, such as new customer agreements, additions to existing agreements or increases in price that occurred during the period and are additions to Run Rate. Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or
34
reductions in price, resulting in reductions to Run Rate. Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact to Run Rate during the period.
Total gross sales represent the sum of new recurring subscription sales and non-recurring sales. Total net sales represent the total gross sales net of the impact from subscription cancellations.
The following table presents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the periods indicated:
New recurring subscription sales
25,635
20,276
26.4
46,491
39,330
16,282
14,979
8.7
28,492
26,197
8.8
17,756
11,202
29,396
18,196
61.6
1,860
1,146
62.3
3,544
2,321
52.7
New recurring subscription sales total
61,533
47,603
29.3
107,923
86,044
25.4
Subscription cancellations
(6,791
(7,423
(8.5
(11,989
(12,539
(4.4
(10,096
(10,553
(4.3
(15,975
(18,797
(15.0
(1,246
(1,755
(29.0
(2,298
(3,258
(29.5
(887
(488
81.8
(1,585
(1,038
Subscription cancellations total
(19,020
(20,219
(31,847
(35,632
(10.6
Net new recurring subscription sales
18,844
12,853
46.6
34,502
26,791
28.8
6,186
4,426
39.8
12,517
7,400
69.1
16,510
9,447
74.8
27,098
14,938
81.4
973
658
47.9
1,959
1,283
Net new recurring subscription sales total
42,513
27,384
55.2
76,076
50,412
50.9
Non-recurring sales
10,769
10,450
3.1
21,974
20,733
6.0
2,773
1,659
67.1
5,746
4,924
16.7
1,140
416
174.0
1,837
567
224.0
185
158
1,071
1,038
3.2
Non-recurring sales total
14,867
12,683
17.2
30,628
27,262
Gross sales
36,404
30,726
18.5
68,465
60,063
14.0
19,055
16,638
34,238
31,121
10.0
18,896
11,618
62.6
31,233
18,763
66.5
2,045
1,304
56.8
4,615
3,359
37.4
Total gross sales
76,400
60,286
26.7
138,551
113,306
22.3
Net sales
29,613
23,303
27.1
56,476
47,524
18.8
8,959
6,085
47.2
18,263
12,324
48.2
17,650
9,863
79.0
28,935
15,505
86.6
1,158
816
41.9
3,030
30.5
Total net sales
57,380
40,067
106,704
77,674
35
A significant portion of MSCI's operating revenues are derived from subscriptions or licenses of products and services, which are provided over contractually-agreed periods of time that are subject to renewal or cancellation at the end of current contract terms.
Retention Rate
The following table presents our Retention Rate by reportable segment for the periods indicated:
95.6%
94.7%
96.1%
95.5%
92.7%
92.0%
94.2%
92.9%
96.4%
93.1%
96.7%
93.6%
93.7%
96.2%
94.4%
95.9%
93.5%
95.3%
The annual Retention Rate represents the retained subscription Run Rate (subscription Run Rate at the beginning of the fiscal year less actual cancels during the year) as a percentage of the subscription Run Rate at the beginning of the fiscal year. Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our future operating revenues over time.
The Retention Rate for a non-annual period is calculated by annualizing the cancellations for which we have received a notice of termination or for which we believe there is an intention not to renew during the non-annual period, and we believe that such notice or intention evidences the client’s final decision to terminate or not renew the applicable 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 fiscal year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the period.
Retention Rate is computed by operating segment on a product/service-by-product/service basis. In general, if a client reduces the number of products or services to which it subscribes within a segment, or switches between products or services within a segment, we treat it as a cancellation for purposes of calculating our Retention Rate except in the case of a product or service switch that management considers to be a replacement product or service. In those replacement cases, only the net change to the client subscription, if a decrease, is reported as a cancel. In the Analytics and the ESG and Climate operating segments, substantially all product or service switches are treated as replacement products or services and netted in this manner, while in our Index and Real Estate operating segments, product or service switches that are treated as replacement products or services and receive netting treatment occur only in certain limited instances. In addition, we treat any reduction in fees resulting from a down-sell of the same product or service as a cancellation to the extent of the reduction. We do not calculate Retention Rate for that portion of our Run Rate attributable to assets in index-linked investment products or futures and options contracts, in each case, linked to our indexes.
Retention Rate is generally higher during the first three quarters and lower in the fourth quarter, as the fourth quarter is traditionally the largest renewal period in the year.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, “Introduction and Basis of Presentation,” of the Notes to Consolidated Financial Statements included in our Form 10-K. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year ended December 31, 2020.
Liquidity and Capital Resources
We require capital to fund ongoing operations, internal growth initiatives and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, existing cash and cash equivalents and credit capacity under our existing credit facility. In addition, we believe we have access to additional funding in the public and private markets. We intend to use these sources of liquidity to, among other things, service our existing and future debt obligations, fund our working capital requirements for capital expenditures, investments, acquisitions and dividend payments, and repurchases of our common stock. In connection with our business strategy, we regularly evaluate acquisition and strategic partnership opportunities. We believe our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our planned growth.
Senior Notes and Credit Agreement
We have an aggregate of $4,000.0 million in Senior Notes outstanding and a $500.0 million undrawn Revolving Credit Agreement with a syndicate of banks. See Note 7, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our Senior Notes and Revolving Credit Agreement.
The Senior Notes and the Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly owned domestic subsidiaries that account for more than 5% of our and our subsidiaries’ consolidated assets, other than certain excluded subsidiaries (the “subsidiary guarantors”). Amounts due under the Revolving Credit Agreement are our and the subsidiary guarantors’ senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.
The indentures governing our Senior Notes (the “Indentures”) among us, each of the subsidiary guarantors, and Wells Fargo Bank, National Association, as trustee, contain covenants that limit our and certain of our subsidiaries’ ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries’ ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis.
The Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and the ability of our existing or future subsidiaries to:
incur liens;
in the case of our subsidiaries that are not guarantors under the Revolving Credit Agreement, incur additional indebtedness;
merge, dissolve, liquidate, consolidate with or into another person or sell all or substantially all assets of the Company and its subsidiaries on a consolidated basis;
enter into sale/leaseback transactions;
pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments; or
change the nature of our business.
The Revolving Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, and bankruptcy and insolvency events, and, in the case of the Revolving Credit Agreement, invalidity or impairment of loan documentation, change of control and customary ERISA defaults in addition to the foregoing. None of the restrictions above are expected to impact our ability to effectively operate the business.
The Revolving Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 (or 4.50:1.00 for two fiscal quarters following a material acquisition) and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of June 30, 2021, our Consolidated Leverage Ratio was 3.45:1.00 and our Consolidated Interest Coverage Ratio was 7.55:1.00. As of June 30, 2021, there were no amounts drawn and outstanding under the Revolving Credit Agreement.
Our non-guarantor subsidiaries under the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $1,109.3 million, or 60.1%, of our total revenue for the trailing 12 months ended June 30, 2021, approximately $407.9 million, or 41.9%, of our consolidated operating income for the trailing 12 months ended June 30, 2021, and approximately $1,064.8 million, or 22.2%, of our consolidated total assets (excluding intercompany assets) and $717.6 million, or 13.9%, of our consolidated total liabilities, in each case as of June 30, 2021.
37
Share Repurchases
The following table provides information with respect to repurchases of the Company’s common stock pursuant to open market repurchases:
As of June 30, 2021, there was $1,594.4 million of available authorization remaining under the 2020 Repurchase Program.
Cash Dividend
On July 26, 2021, the Board of Directors declared a quarterly cash dividend of $1.04 per share for the three months ending September 30, 2021. This reflects an increase of 33.3% over the quarterly cash dividend declared for the three months ended June 30, 2021. The third quarter 2021 dividend is payable on August 31, 2021 to shareholders of record as of the close of trading on August 13, 2021.
Cash Flows
Cash and cash equivalents were $1,972.0 million and $1,300.5 million as of June 30, 2021 and December 31, 2020, respectively. We typically seek to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes. As of June 30, 2021 and December 31, 2020, $491.3 million and $423.4 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. The global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes or other needs, including acquisitions or expansion of our products.
We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter.
Net Cash Provided by (Used In) Operating, Investing and Financing Activities
38
Cash Flows From Operating Activities
Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was $440.5 million and $375.4 million for the six months ended June 30, 2021 and 2020, respectively. The year-over-year increase was driven by higher cash collections from customers and lower interest payments, partially offset by higher payments for income taxes and cash expenses.
Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent, technology costs, market data costs, interest expenses and income taxes. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash Flows From Investing Activities
Cash used in investing activities was $22.3 million for the six months ended June 30, 2021 compared to $213.2 million for the six months ended June 30, 2020. The year-over-year change was primarily driven by the absence of the $190.8 million equity method investment in Burgiss.
Cash Flows From Financing Activities
Cash provided by financing activities was $256.9 million for the six months ended June 30, 2021 compared to cash used in financing activities of $275.1 million for the six months ended June 30, 2020. The year-over-year change was primarily driven by the impact of lower repayment on borrowings and lower share repurchases, partially offset by the impact of lower proceeds from the new senior notes offerings made during the six months ended June 30, 2021.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
We are subject to foreign currency exchange fluctuation risk. Exchange rate movements can impact the U.S. dollar-reported value of our revenues, expenses, assets and liabilities denominated in non-U.S. dollar currencies or where the currency of such items is different than the functional currency of the entity where these items were recorded.
We generally invoice our clients in U.S. dollars; however, we invoice a portion of our clients in Euros, British pounds sterling, Japanese yen and a limited number of other non-U.S. dollar currencies. For the six months ended June 30, 2021 and 2020, 15.3% and 13.9%, respectively, of our revenues are subject to foreign currency exchange rate risk and primarily includes clients billed in foreign currency as well as U.S. dollar exposures on non-U.S. dollar foreign operating entities. Of the 15.3% of non-U.S. dollar exposure for the six months ended June 30, 2021, 42.5% was in Euros, 25.3% was in British pounds sterling and 24.3% was in Japanese yen. Of the 13.9% of non-U.S. dollar exposure for the six months ended June 30, 2020, 39.7% was in Euros, 27.4% was in Japanese yen and 23.6% was in British pounds sterling.
Revenues from asset-based fees represented 26.9% and 22.8% of operating revenues for the six months ended June 30, 2021 and 2020, respectively. While a substantial portion of our asset-based fees are invoiced in U.S. dollars, the fees are based on the assets in investment products, of which more than three-fifths are invested in securities denominated in currencies other than the U.S. dollar. Accordingly, declines in such other currencies against the U.S. dollar will decrease the fees payable to us under such licenses. In addition, declines in such currencies against the U.S. dollar could impact the attractiveness of such investment products resulting in net fund outflows, which would further reduce the fees payable under such licenses.
We are exposed to additional foreign currency risk in certain of our operating costs. Approximately 42.0% and 40.5% of our operating expenses for the six months ended June 30, 2021 and 2020, respectively, were denominated in foreign currencies, the significant majority of which were denominated in British pounds sterling, Indian rupees, Hungarian forints, Euros, Swiss francs, Mexican pesos and Hong Kong dollars. Expenses incurred in foreign currency may increase as we expand our business outside the U.S.
We have certain monetary assets and liabilities denominated in currencies other than local functional amounts and when these balances are remeasured into their local functional currency, either a gain or a loss results from the change of the value of the functional currency as compared to the originating currencies. We manage foreign currency exchange rate risk, in part, through the use
of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the impact on the income statement of the volatility of amounts denominated in certain foreign currencies. We recognized total foreign currency exchange losses of $0.5 million and gains of $1.4 million for the six months ended June 30, 2021 and 2020, respectively.
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of June 30, 2021, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company in the ordinary course of business. While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that MSCI’s business, operating results, financial condition or cash flows in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are currently pending or asserted will not, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.
There have been no material changes to the significant risk factors and uncertainties known to the Company and disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2020 that, if they were to materialize or occur, would, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.
For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for fiscal year 2020.
There have been no unregistered sales of equity securities.
The table below presents information with respect to purchases made by or on behalf of the Company of its common shares during the three months ended June 30, 2021.
Issuer Purchases of Equity Securities
Period
Purchased(1)
Average Price
Paid
Purchased
As Part of
Publicly
Announced
Plans
or Programs
Approximate
Value of Shares
that May Yet
Be
Under
the Plans or
Programs(2)
April 1, 2021-April 30, 2021
141
439.44
1,594,416,000
May 1, 2021-May 31, 2021
196
476.34
June 1, 2021-June 30, 2021
966
480.75
1,303
475.61
Includes (i) shares purchased by the Company on the open market under the stock repurchase program; (ii) shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying restricted stock units; (iii) shares withheld to satisfy tax withholding obligations and exercise price on behalf of employees that occur upon exercise and delivery of outstanding shares underlying stock options; and (iv) shares held in treasury under the MSCI Inc. Non-Employee Directors Deferral Plan. The value of shares withheld to satisfy tax withholding obligations was determined using the fair market value of the Company’s common stock on the date of withholding, using a valuation methodology established by the Company.
See Note 9, “Shareholders’ Equity (Deficit)” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding our stock repurchase program.
EXHIBIT INDEX
Exhibit
Number
Description
Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)
Amended and Restated Bylaws (filed as Exhibit 3.1 to the Company’s Form 8-K (File No. 001-33812), filed with the SEC on January 11, 2021 and incorporated by reference herein)
4.1
Indenture, dated as of May 14, 2021, among MSCI Inc., each of the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as Trustee (included in Exhibit 4.1 of MSCI Inc.’s Current Report on Form 8-K (File No. 001-33812), filed with the SEC on May 14, 2021 and incorporated by reference herein)
4.2
Form of Note for MSCI Inc. 3.625% Senior Notes due November 1, 2031 (included in Exhibit 4.1 of MSCI Inc.’s Current Report on Form 8-K (File No. 001-33812), filed with the SEC on May 14, 2021 and incorporated by reference herein)
10.1*†
Form of Award Agreement for Restricted Stock Units for Directors Under the MSCI Inc. 2016 Non-Employee Directors Compensation Plan
Statement Re: Computation of Earnings Per Common Share (The calculation of per share earnings is in Part I, Item 1, Note 4 to the Condensed Consolidated Financial Statements (Earnings Per Common Share) and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K)
*
31.1
Rule 13a-14(a) Certification of the Chief Executive Officer
31.2
Rule 13a-14(a) Certification of the Chief Financial Officer
**
32.1
Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Filed herewith.
Furnished herewith.
†
Indicates a management compensation plan, contract or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: July 27, 2021
(Registrant)
By:
/s/ Andrew C. Wiechmann
Andrew C. Wiechmann
Chief Financial Officer
(Principal Financial Officer)