MSCI Reports Financial Results for Second Quarter and Six Months 2019

NEW YORK–(BUSINESS WIRE)–MSCI Inc. (NYSE: MSCI), a leading provider of critical decision support tools and services for the global investment community, today announced results for the three months ended June 30, 2019 (“second quarter 2019”) and six months ended June 30, 2019 (“six months 2019”).

Financial and Operational Highlights for Second Quarter 2019

(Note: Percentage and other changes refer to second quarter 2018 unless otherwise noted.)

  • Organic subscription Run Rate growth of 10.1%; Index up 11.1%, Analytics up 6.8% and All Other up 19.7%.
  • Operating revenues up 6.2% with recurring subscription revenues up 8.4%, asset-based fees and non-recurring revenues together up 0.1%.
  • Organic operating revenue growth was 8.2% with organic recurring subscription revenue growth of 11.0%.
  • Diluted EPS of $1.47, up 14.8%; Adjusted EPS of $1.54, up 18.5%.
  • Quarterly Retention Rate at 95.5%, highest over the last decade.
  • Board of Directors (“Board”) approved a 17.2% increase to quarterly dividend to $0.68 per share payable in the third quarter of 2019; payout ratio target maintained at a range of 40% to 50% of Adjusted EPS.

 

 

Three Months Ended

 

 

Six Months Ended

 

In thousands,

 

June 30,

 

 

June 30,

 

 

Mar. 31,

 

 

YoY %

 

 

June 30,

 

 

June 30,

 

 

YoY %

 

except per share data (unaudited)

 

2019

 

 

2018

 

 

2019

 

 

Change

 

 

2019

 

 

2018

 

 

Change

 

Operating revenues

 

$

385,558

 

 

$

363,046

 

 

$

371,381

 

 

 

6.2

%

 

$

756,939

 

 

$

714,362

 

 

 

6.0

%

Operating income

 

$

192,378

 

 

$

173,511

 

 

$

162,675

 

 

 

10.9

%

 

$

355,053

 

 

$

340,677

 

 

 

4.2

%

Operating margin %

 

 

49.9

%

 

 

47.8

%

 

 

43.8

%

 

 

 

 

 

 

46.9

%

 

 

47.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

125,690

 

 

$

116,829

 

 

$

178,192

 

 

 

7.6

%

 

$

303,882

 

 

$

231,921

 

 

 

31.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

$

1.47

 

 

$

1.28

 

 

$

2.08

 

 

 

14.8

%

 

$

3.55

 

 

$

2.52

 

 

 

40.9

%

Adjusted EPS

 

$

1.54

 

 

$

1.30

 

 

$

1.55

 

 

 

18.5

%

 

$

3.09

 

 

$

2.61

 

 

 

18.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

211,796

 

 

$

200,425

 

 

$

197,707

 

 

 

5.7

%

 

$

409,503

 

 

$

387,134

 

 

 

5.8

%

Adjusted EBITDA margin %

 

 

54.9

%

 

 

55.2

%

 

 

53.2

%

 

 

 

 

 

 

54.1

%

 

 

54.2

%

 

 

 

 

 

Our Run Rate, recurring net new sales, and retention rate all reached record levels for the first half of the year as clients turn to MSCI’s offerings to help them better achieve their objectives and operate more efficiently. This is reflected by some significant client wins and momentum across client segments and geographies,” commented Henry A. Fernandez, Chairman and CEO of MSCI.

We are only scratching the surface of what is possible in key growth areas such as ESG, factors, fixed income, wealth management, index derivatives and private assets. We see enormous growth opportunities in front of us, and our strong performance in the first half of 2019 amid a rapidly transforming industry is a testament to the value we bring to the global investment community,” added Mr. Fernandez.

Second Quarter 2019 Consolidated Results

Revenues: Operating revenues for second quarter 2019 increased $22.5 million, or 6.2%, to $385.6 million, compared to the three months ended June 30, 2018 (“second quarter 2018”). The $22.5 million increase in operating revenues was driven by a $22.4 million, or 8.4%, increase in recurring subscriptions (driven primarily by a $12.5 million, or 10.5%, increase in Index, a $4.2 million, or 24.9%, increase in ESG, and a $4.2 million, or 3.5%, increase in Analytics). Asset-based fees and non-recurring revenues were relatively flat compared to second quarter 2018. Organic operating revenue growth was 8.2%, with organic recurring subscriptions revenue growth of 11.0%, organic non-recurring revenue growth of 4.8% and organic asset-based fee growth of 0.2%.

For six months 2019, operating revenues increased $42.6 million, or 6.0%, to $756.9 million, compared to $714.4 million for the six months ended June 30, 2018 (“six months 2018”). The $42.6 million increase was driven by a $44.0 million, or 8.3%, increase in recurring subscriptions and $2.2 million, or 16.0%, increase in non-recurring revenues, partially offset by a $3.6 million, or 2.1%, decrease in asset-based fees. For six months 2019, organic operating revenue growth was 8.4%, with organic recurring subscriptions revenue growth of 11.6%, organic non-recurring revenue growth of 21.1% and organic asset-based fee decline of 2.0%.

Run Rate: Total Run Rate at June 30, 2019 grew by $106.0 million, or 7.5%, to $1,517.7 million, compared to June 30, 2018. The $106.0 million increase was driven by an $88.2 million, or 8.1%, increase in recurring subscription Run Rate to $1,172.6 million, and a $17.8 million, or 5.4%, increase in asset-based fees Run Rate to $345.1 million. Organic subscription Run Rate growth of 10.1% in second quarter 2019 was driven by strong growth in the Index and ESG segments and in the Analytics segment’s Multi-Asset Class and Equity Analytics products. Retention Rate was 95.5% in second quarter 2019, our highest quarterly retention rate over the last decade, compared to 94.1% in second quarter 2018.

Expenses: Total operating expenses for second quarter 2019 increased $3.6 million, or 1.9%, to $193.2 million compared to second quarter 2018, driven mainly by an $8.2 million, or 7.1%, increase in compensation and benefits costs and a $2.9 million, or 6.3%, increase in non-compensation costs, partially offset by a $7.9 million non-cash charge in second quarter 2018 related to the write-off of the IPD tradename used by the Real Estate segment. The compensation and benefits costs increase is primarily attributable to higher incentive compensation and benefit costs. The non-compensation costs increase is primarily attributable to higher travel and entertainment costs, professional fees, information technology costs and miscellaneous expenses, partially offset by lower non-income taxes.

Adjusted EBITDA expenses for second quarter 2019 increased $11.1 million, or 6.9%, to $173.8 million, compared to second quarter 2018. Total operating expenses excluding the impact of foreign currency exchange rate fluctuations (“ex-FX”) and adjusted EBITDA expenses ex-FX for second quarter 2019 increased 3.7% and 8.9%, respectively, compared to second quarter 2018.

For six months 2019, total operating expenses increased $28.2 million, or 7.5%, to $401.9 million. Adjusted EBITDA expenses increased $20.2 million, or 6.2%, to $347.4 million compared to six months 2018. Total operating expenses and adjusted EBITDA expenses ex-FX for six months 2019 increased 10.0% and 8.9%, respectively, compared to six months 2018.

Headcount: As of June 30, 2019, there were 3,266 employees, up 6.7% from 3,062 as of June 30, 2018, and up 2.7% from 3,179 as of March 31, 2019. The 6.7% year-over-year increase in employees was primarily driven by increased headcount in emerging market centers and in areas related to technology, data and content services and research. As of June 30, 2019, a total of 37.2% and 62.8% of employees were located in developed market and emerging market centers, respectively, compared to 40.2% in developed market centers and 59.8% in emerging market centers as of June 30, 2018.

Amortization and Depreciation Expenses: Amortization and depreciation expenses decreased $7.5 million, or 27.9%, to $19.4 million, compared to second quarter 2018, primarily as a result of lower amortization from the write-off of the IPD tradename used by the Real Estate segment in second quarter 2018 and the impact of the Investor Force Holdings, Inc. (“InvestorForce”) divestiture in October 2018, partially offset by higher amortization of internally developed capitalized software. For six months 2019, amortization and depreciation expenses of $39.1 million decreased by $7.4 million, or 15.9%, compared to six months 2018.

Other Expense (Income), Net: Other expense (income), net increased $15.4 million, or 89.9%, to $32.6 million, compared to second quarter 2018, primarily due to the gain realized in second quarter 2018 from the divestiture of Financial Engineering Associates, Inc. (“FEA”), coupled with higher interest expense associated with higher outstanding debt. For six months 2019, other expense (income), net increased $22.1 million, or 49.2%, to $67.0 million, compared to six months 2018.

Income Taxes: Income tax expense was $34.1 million for second quarter 2019, compared to $39.5 million for second quarter 2018. The effective tax rates were 21.3% and 25.3% for second quarter 2019 and second quarter 2018, respectively. The decline was primarily due to a beneficial geographic mix of earnings and lower anticipated taxes on repatriation of foreign earnings. For second quarter 2019, there were certain discrete items totaling $0.8 million, including $1.2 million of excess tax benefits on share-based compensation.

For six months 2019, there was an income tax benefit of $15.8 million, compared to an income tax expense of $63.8 million for six months 2018. The effective tax rates were a negative 5.5% and 21.6% for six months 2019 and six months 2018, respectively. The lower effective tax rate compared to six months 2018 was driven by the income tax benefit (the “PSU windfall benefit”) related to the vesting of the multi-year restricted stock units (“PSUs”) granted in 2016 to certain senior executives that are subject to the achievement of multi-year total shareholder return targets, which are performance targets with a market condition (“Multi-Year PSUs”), a beneficial geographic mix of earnings and other discrete items. The PSU windfall benefit totaled $66.6 million in the three months ended March 31, 2019 (“first quarter 2019”) and is excluded from both the adjusted net income and adjusted EPS measures for six months 2019. Excluding the PSU windfall benefit, the six months 2019 adjusted tax rate was 17.6%.

Net Income: Net income increased 7.6% to $125.7 million in second quarter 2019, compared to $116.8 million in second quarter 2018. For six months 2019, net income increased 31.0% to $303.9 million, compared to $231.9 million for six months 2018.

Adjusted EBITDA: Adjusted EBITDA was $211.8 million in second quarter 2019, up $11.4 million, or 5.7%, from second quarter 2018. Adjusted EBITDA margin in second quarter 2019 was 54.9%, compared to 55.2% in second quarter 2018. For six months 2019, adjusted EBITDA was $409.5 million, up 5.8% from six months 2018, and adjusted EBITDA margin was 54.1% for six months 2019, compared to 54.2% for six months 2018.

Cash Balances and Outstanding Debt: Total cash and cash equivalents as of June 30, 2019 was $771.1 million. MSCI seeks to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes.

Total outstanding debt as of June 30, 2019 was $2,600.0 million, which excludes deferred financing fees of $22.7 million. Net debt, defined as total outstanding debt less cash and cash equivalents, was $1,828.9 million as of June 30, 2019. The total debt to operating income ratio (based on trailing twelve months operating income) was 3.7x. The total debt to adjusted EBITDA ratio (based on trailing twelve months adjusted EBITDA) was 3.3x, which is within the stated gross leverage to adjusted EBITDA target range of 3.0x to 3.5x.

Cash Flow and Capex: Net cash provided by operating activities was $189.5 million in second quarter 2019, compared to $207.2 million in second quarter 2018 and $87.9 million in the first quarter 2019. Capex for second quarter 2019 was $12.4 million, compared to $7.2 million in second quarter 2018 and $8.1 million in first quarter 2019. Free cash flow was $177.1 million in second quarter 2019, compared to $200.0 million in second quarter 2018 and $79.7 million in first quarter 2019. The increase in net cash provided by operating activities compared to first quarter 2019 was driven primarily by lower payments of cash expenses (primarily related to the impact of the annual cash incentives paid in the first quarter), partially offset by higher income tax payments and lower cash collections. The increase in free cash flow, compared to first quarter 2019, was driven by the higher net cash provided by operating activities described in the preceding sentence, partially offset by higher Capex. The decrease in net cash provided by operating activities, compared to second quarter 2018, was driven primarily by higher payments of cash expenses, interest payments and lower cash collections, partially offset by lower payments of income taxes. The decrease in free cash flow, compared to second quarter 2018, was driven by the lower net cash provided by operating activities described in the preceding sentence as well as higher Capex.

Net cash provided by operating activities was $277.3 million for six months 2019, compared to $295.8 million for six months 2018. Capex for six months 2019 was $20.5 million, compared to $13.1 million for six months 2018. Free cash flow was $256.8 million for six months 2019, compared to $282.7 million for six months 2018. The decrease in net cash provided by operating activities for six months 2019 compared to the same period of the prior year was primarily driven by higher payments of cash expenses and interest payments, partially offset by higher cash collections and lower payments of income taxes. The decrease in free cash flow for six months 2019, compared to the same period of the prior year, was driven by the lower net cash provided by operating activities described in the preceding sentence as well as higher Capex.

Share Count and Capital Return: The weighted average diluted shares outstanding in second quarter 2019 declined 6.8% to 85.4 million, compared to 91.6 million in second quarter 2018. In six months 2019, a total of 0.7 million shares were repurchased at an average price of $147.97 per share for a total value of $102.1 million, with no repurchases in second quarter 2019. A total of $0.7 billion remains on the outstanding share repurchase authorization as of July 30, 2019. Total shares outstanding as of June 30, 2019 was 84.7 million.

On July 30, 2019, the Board declared a cash dividend of $0.68 per share for third quarter 2019, representing an increase of 17.2% from $0.58 per share in the previous quarter. The third quarter 2019 dividend is payable on August 30, 2019 to shareholders of record as of the close of trading on August 16, 2019.

Table 1: Results by Segment (unaudited)

 

 

Index

 

 

Analytics

 

 

All Other

 

 

 

 

 

 

 

 

 

Adjusted

 

 

 

 

 

 

 

 

Adjusted

 

 

 

 

 

 

 

 

Adjusted

 

 

 

Operating

 

Adjusted

 

EBITDA

 

 

Operating

 

Adjusted

 

EBITDA

 

 

Operating

 

Adjusted

 

EBITDA

 

In thousands

 

Revenues

 

EBITDA

 

Margin

 

 

Revenues

 

EBITDA

 

Margin

 

 

Revenues

 

EBITDA

 

Margin

 

2Q’19

 

$

225,550

 

$

163,915

 

 

72.7

%

 

$

123,681

 

$

39,071

 

 

31.6

%

 

$

36,327

 

$

8,810

 

 

24.3

%

2Q’18

 

$

212,934

 

$

157,516

 

 

74.0

%

 

$

119,119

 

$

36,327

 

 

30.5

%

 

$

30,993

 

$

6,582

 

 

21.2

%

1Q’19

 

$

214,773

 

$

152,211

 

 

70.9

%

 

$

121,435

 

$

36,398

 

 

30.0

%

 

$

35,173

 

$

9,098

 

 

25.9

%

YoY % change

 

 

5.9

%

 

4.1

%

 

 

 

 

 

3.8

%

 

7.6

%

 

 

 

 

 

17.2

%

 

33.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD 2019

 

$

440,323

 

$

316,126

 

 

71.8

%

 

$

245,116

 

$

75,469

 

 

30.8

%

 

$

71,500

 

$

17,908

 

 

25.0

%

YTD 2018

 

$

414,848

 

$

303,446

 

 

73.1

%

 

$

238,106

 

$

69,920

 

 

29.4

%

 

$

61,408

 

$

13,768

 

 

22.4

%

% change

 

 

6.1

%

 

4.2

%

 

 

 

 

 

2.9

%

 

7.9

%

 

 

 

 

 

16.4

%

 

30.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Index Segment: Operating revenues for second quarter 2019 increased $12.6 million, or 5.9%, to $225.6 million, compared to second quarter 2018. The increase was driven by a $12.5 million, or 10.5%, increase in recurring subscriptions. Non-recurring revenues and asset-based fees were flat compared to second quarter 2018. The increase in recurring subscriptions was driven by strong growth in core products, factor and ESG index products and custom index products.

Revenues from asset-based fees of $87.7 million were flat, with a $0.7 million, or 19.5%, increase in revenues from exchange traded futures and options contracts based on MSCI indexes, offset by a $0.6 million, or 0.9%, decline in revenues from exchange traded funds (“ETFs”) linked to MSCI indexes and a $0.1 million, or 0.3%, decline in revenues from non-ETF passive funds linked to MSCI indexes. The increase in revenues from futures and options was primarily driven by the increase in total trading volumes. The decrease in revenues from ETFs linked to MSCI indexes was driven by a decline in average basis point fees resulting primarily from a change in product mix, partially offset by a 4.5% increase in average assets under management (“AUM”).

The adjusted EBITDA margin for Index was 72.7% for second quarter 2019, compared to 74.0% for second quarter 2018.

Operating revenues for six months 2018 increased $25.5 million, or 6.1%, to $440.3 million, compared to $414.8 million for six months 2018. The $25.5 million increase was driven by a $27.0 million, or 11.6%, increase in recurring subscriptions and a $2.1 million, or 23.2%, increase in non-recurring revenues, partially offset by a $3.6 million, or 2.1%, decline in asset-based fees. The adjusted EBITDA margin for Index was 71.8% for six months 2019, compared to 73.1% for six months 2018.

Index Run Rate at June 30, 2019 grew by $71.0 million, or 8.8%, to $876.7 million, compared to June 30, 2018. The increase was driven by a $53.2 million, or 11.1%, increase in recurring subscription Run Rate, and a $17.8 million, or 5.4%, increase in asset-based fees Run Rate. The 11.1% increase in Index recurring subscription Run Rate was driven by strong growth in core developed and emerging market modules, factor and ESG, and custom index products. The growth was also supported by strong performance across our asset management, banking, hedge funds, wealth management and asset owner client segments. The increase in asset-based fees Run Rate was primarily driven by higher AUM in ETFs linked to MSCI indexes, as well as an increase in non-ETF passive funds linked to MSCI indexes and higher volume in futures and options.

Analytics Segment: Operating revenues for second quarter 2019 increased $4.6 million, or 3.8%, to $123.7 million, compared to second quarter 2018, primarily driven by growth in both Multi-Asset Class and Equity Analytics products and the timing of client implementations, partially offset by the divestiture of InvestorForce. Organic operating revenue growth was 8.6%. The adjusted EBITDA margin for Analytics was 31.6% for second quarter 2019, compared to 30.5% for second quarter 2018.

Operating revenues for six months 2019 increased $7.0 million, or 2.9%, to $245.1 million, compared to $238.1 million for six months 2018. Organic operating revenue growth was 8.9%. The adjusted EBITDA margin for Analytics was 30.8% for six months 2019, compared to 29.4% for six months 2018.

Analytics Run Rate at June 30, 2019 grew by $14.0 million, or 2.9%, to $504.0 million, compared to June 30, 2018, primarily driven by growth in both Multi-Asset Class and Equity Analytics products, partially offset by the removal of Run Rate associated with InvestorForce, which was divested in October 2018. Analytics organic subscription Run Rate growth was 6.8% compared to June 30, 2018.

All Other Segment: Operating revenues for second quarter 2019 increased $5.3 million, or 17.2%, to $36.3 million, compared to second quarter 2018. The increase in All Other operating revenues was driven by a $4.1 million, or 24.0%, increase in ESG operating revenues to $21.4 million, coupled with a $1.2 million, or 8.7%, increase in Real Estate operating revenues to $14.9 million. The increase in ESG operating revenues was driven by strong growth in ESG Ratings products and ESG Screening product revenues, as we continue to see strong demand across all client segments and new use cases. The increase in Real Estate operating revenues was primarily driven by strong growth in our Global Intel product offering, partially offset by the unfavorable impact of foreign currency exchange rate fluctuations. Second quarter 2019 All Other organic operating revenue growth was 21.9%, with ESG organic operating revenue growth of 27.3% and Real Estate organic operating revenue growth of 15.0%. The adjusted EBITDA margin for All Other was 24.2% for second quarter 2019, compared to 21.2% for second quarter 2018.

Operating revenues for six months 2019 increased $10.1 million, or 16.4%, to $71.5 million, compared to $61.4 million for six months 2018. The increase in All Other revenues was driven by a $9.3 million, or 27.4%, increase in ESG revenues to $43.0 million, and a $0.8 million, or 3.0%, increase in Real Estate revenues to $28.5 million. All Other organic operating revenue growth for six months 2019 was 21.4%, with ESG organic operating revenue growth of 30.7% and Real Estate organic operating revenue growth of 10.0%. The adjusted EBITDA margin for All Other was 25.0% for six months 2019, compared to 22.4% for six months 2018.

All Other Run Rate at June 30, 2019 grew by $21.0 million, or 18.1%, to $137.0 million, compared to June 30, 2018. The increase was driven by a $17.4 million, or 24.3%, increase in ESG Run Rate to $88.9 million, and a $3.7 million, or 8.2%, increase in Real Estate Run Rate to $48.1 million. The increase in ESG Run Rate was primarily driven by strong growth in ESG Ratings products and an increase in ESG Screening products. The increase in Real Estate Run Rate was primarily driven by growth in Global Intel products. All Other organic subscription Run Rate growth was 19.7%, with organic ESG Run Rate growth of 25.2%, and organic Real Estate Run Rate growth of 10.7%, each compared to June 30, 2018.

Full-Year 2019 Guidance

MSCI’s guidance for full-year 2019 is as follows:

  • Total operating expenses are expected to be in the range of $775 million to $800 million.
  • Adjusted EBITDA expenses1 are expected to be in the range of $685 million to $705 million.
  • Interest expense, including the amortization of financing fees, is expected to be approximately $144 million, assuming no additional financings.
  • Capex is expected to be in the range of $45 million to $55 million.
  • Net cash provided by operating activities and free cash flow are expected to be in the ranges of $600 million to $630 million and $545 million to $585 million, respectively.
  • The effective tax rate2 is now expected to be in the range of 8.0% to 11.0%.

1Excludes the payroll tax impact from the vesting in first quarter 2019 of the Multi-Year PSUs.

2Includes the PSU windfall benefit which is expected to reduce the 2019 effective tax rate by ~11 percentage points. The previous effective tax rate guidance was expected to be in the range of 9.0% to 12.0%.

Conference Call Information

MSCI’s senior management will review the second quarter 2019 results on Thursday, August 1, 2019 at 11:00 AM Eastern Time. To listen to the live event, visit the events and presentations section of MSCI’s Investor Relations homepage, http://ir.msci.com/events.cfm, or dial 1-877-376-9931 conference ID: 7743929 within the United States. International callers dial 1-720-405-2251 conference ID: 7743929. The earnings release, second quarter update and related investor presentation used during the conference call will be made available on MSCI’s Investor Relations homepage.

An audio recording of the conference call will be available on our Investor Relations website, http://ir.msci.com/events.cfm, beginning approximately two hours after the conclusion of the live event. Through August 4, 2019, the recording will also be available by dialing 1-855-859-2056 conference ID: 7743929 within the United States or 1-404-537-3406 conference ID: 7743929 for international callers. A replay of the conference call will be archived in the events and presentations section of MSCI’s Investor Relations website for 12 months after the call.

Contacts

MSCI Inc.

Investors Inquiries

Linda Huber investor.relations@msci.com + 1 646 465 7043

Media Inquiries

PR@msci.com

Sam Wang +1 212 804 5244

Melanie Blanco +1 212 981 1049

Laura Hudson +44 20 7336 9653

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