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 endedDecember 31, 2021 (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 "
Overview
We are a leading provider of critical decision support tools and solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. We operate in four reportable segments as follows: Index, Analytics, ESG and Climate, and All Other - Private Assets. Our growth strategy includes: (a) extending leadership in research-enhanced content across asset classes, (b) leading the enablement of ESG and climate investment integration, (c) enhancing distribution and content-enabling technology, (d) expanding solutions that empower client customization, (e) strengthening client relationships and growing into strategic partnerships with clients and (f) executing strategic relationships and acquisitions with complementary content and technology companies. For more information about our Company's operations, see "Item 1: Business" in our Form 10-K.
As of
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. Real Assets products are also licensed annually through subscriptions, which are generally recurring, for a fee which is paid in advance when products are generally delivered ratably over the subscription period or in arrears after the product is delivered. 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. In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under generally accepted accounting principles inthe United States ("GAAP") as well as non-GAAP measures, for the Company as a whole and by operating segment. We present revenues disaggregated by types and by segments, which represent our major product lines. We also review expenses by activity, which provides more transparency into how resources are being deployed. In addition, we utilize operating metrics includingRun Rate , subscription sales and Retention Rate to manage and assess performance and to provide deeper insights into the recurring portion of our business. In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations and acquisitions. 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. Approximately three-fifths of the AUM is invested in securities denominated in currencies other than theU.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency-adjusted variances. For the nine months endedSeptember 30, 2022 , our largest client organization by revenue, BlackRock, accounted for 10.5% of our total revenues, with 95.3% of the revenue from BlackRock coming from fees based on the assets in BlackRock's ETFs that are based on our indexes. The discussion of our results of operations for the three and nine months endedSeptember 30, 2022 and 2021 are presented below. The results of operations for interim periods may not be indicative of future results.
1 Represents the aggregate of all related clients under their respective parent entity.
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Table of Contents Results of Operations Operating Revenues Our operating revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group operating revenues by major product or reportable segment as follows: Index, Analytics, ESG and Climate and All Other - Private Assets, which includes the Real Assets operating segment (formerly known as the Real Estate operating segment). The following table presents operating revenues by type for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Recurring subscriptions$ 420,216 $ 357,640 17.5 %$ 1,227,025 $ 1,043,502 17.6 % Asset-based fees 125,620 141,745 (11.4 %) 402,889 404,593 (0.4 %) Non-recurring 14,803 17,714 (16.4 %) 42,476 45,607 (6.9 %) Total operating revenues$ 560,639 $ 517,099 8.4 %$ 1,672,390 $ 1,493,702
12.0 %
Total operating revenues increased 8.4% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations individually, total operating revenues would have increased 4.9% and 10.7%, respectively. Operating revenues from recurring subscriptions increased 17.5% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by strong growth in Index products, which increased$20.2 million , or 12.2%, All Other - Private Assets products, which increased$20.2 million , or 130.8%, mainly reflecting the acquisition of RCA, and ESG and Climate products, which increased$13.8 million , or 32.3%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 15.6%. Operating revenues from asset-based fees decreased 11.4% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , driven by a decline in revenues from ETFs linked toMSCI equity indexes and non-ETF indexed funds linked toMSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked toMSCI indexes. Operating revenues from ETFs linked toMSCI equity indexes and non-ETF indexed funds linked toMSCI indexes decreased by 14.3% and 14.9%, respectively, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from exchange traded futures and options contracts linked toMSCI indexes increased 15.6%, driven by volume increases. Total operating revenues increased 12.0% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations individually, total operating revenues would have increased 8.1% and 13.6%, respectively. Operating revenues from recurring subscriptions increased 17.6% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by strong growth in Index products, which increased$59.3 million , or 12.3%, All Other - Private Assets products, which increased$57.9 million , or 119.8%, mainly reflecting the acquisition of RCA, and ESG and Climate products, which increased$45.7 million , or 39.6%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 14.2%. Operating revenues from asset-based fees decreased 0.4% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , driven by a decline in revenues from ETFs linked toMSCI equity indexes, partially offset by an increase in revenues from exchange traded futures and options contracts. Operating revenues from ETFs linked toMSCI equity indexes decreased by 3.6%, primarily driven by a decrease in average basis point fees, partially offset by an increase in average AUM. Operating revenues from exchange traded futures and options contracts linked toMSCI indexes increased by 17.3%, driven by volume increases. 25
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The following table presents the value of AUM in ETFs linked toMSCI equity indexes and the sequential change of such assets as of the end of each of the periods indicated: Period Ended 2021 2022 March June September December March June September (in billions) 31, 30, 30, 31, 31, 30, 30, AUM in ETFs linked toMSCI equity indexes(1), (2)$ 1,209.6 $ 1,336.2 $ 1,336.6 $ 1,451.6 $ 1,389.3 $ 1,189.5 $ 1,081.2 Sequential Change in Value Market Appreciation/(Depreciation)$ 43.2 $ 73.7 $ (30.7) $ 56.5 $ (89.7) $ (207.3) $ (105.7) Cash Inflows 62.8 52.9 31.1 58.5 27.4 7.5 (2.6) Total Change$ 106.0 $ 126.6 $ 0.4 $ 115.0 $ (62.3) $ (199.8) $ (108.3)
The following table presents the average value of AUM in ETFs linked to
2021 2022 (in billions) March June September December March June September AUM in ETFs linked toMSCI equity indexes(1), (2) Quarterly average$ 1,169.2 $ 1,292.4
$ 1,169.2 $ 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 toMSCI 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 theSEC . 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 toMSCI 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 toMSCI equity indexes for the three months endedSeptember 30, 2022 , was down$153.0 billion , or 11.2%, compared to the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , it was up$21.1 billion , or 1.7%, compared to the nine months endedSeptember 30, 2021 . 26
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The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating revenues: Index Recurring subscriptions$ 185,531 $ 165,310 12.2 %$ 539,740 $ 480,488 12.3 % Asset-based fees 125,620 141,745 (11.4 %) 402,889 404,593 (0.4 %) Non-recurring 11,089 14,448 (23.2 %) 31,319 34,876 (10.2 %) Index total 322,240 321,503 0.2 % 973,948 919,957 5.9 % Analytics Recurring subscriptions 142,751 134,320 6.3 % 420,047 399,360 5.2 % Non-recurring 2,164 1,978 9.4 % 6,349 6,857 (7.4 %) Analytics total 144,915 136,298 6.3 % 426,396 406,217 5.0 % ESG and Climate Recurring subscriptions 56,353 42,592 32.3 % 160,962 115,299 39.6 % Non-recurring 1,242 1,099 13.0 % 3,790 2,450 54.7 % ESG and Climate total 57,595 43,691 31.8 % 164,752 117,749 39.9 % All Other - Private Assets Recurring subscriptions 35,581 15,418 130.8 % 106,276 48,355 119.8 % Non-recurring 308 189 63.0 % 1,018 1,424 (28.5 %) All Other - Private Assets total 35,889 15,607 130.0 % 107,294 49,779 115.5 % Total operating revenues$ 560,639 $ 517,099 8.4 %$ 1,672,390 $ 1,493,702 12.0 %
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");
•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. Cost of revenues, selling and marketing, R&D and G&A all include both compensation as well as non-compensation related expenses. 27
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The following table presents operating expenses by activity category for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating expenses: Cost of revenues$ 98,418 $ 89,674 9.8 %$ 301,957 $ 262,781 14.9 % Selling and marketing 65,545 59,819 9.6 % 192,671 174,477 10.4 % Research and development 25,941 28,352 (8.5 %) 78,179 80,745 (3.2
%)
General and administrative 30,702 38,110 (19.4 %) 112,993 103,020 9.7 % Amortization of intangible assets 23,375 14,105 65.7 % 67,274 59,569 12.9 % Depreciation and amortization of property, equipment and leasehold improvements 7,127 6,809 4.7 % 20,426 20,972 (2.6
%)
Total operating expenses$ 251,108 $ 236,869 6.0 %$ 773,500 $ 701,564 10.3 % Total operating expenses increased 6.0% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 11.5%. Total operating expenses increased 10.3% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 14.1%. 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 increased 9.8% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , reflecting increases across the All Other - Private Assets, ESG and Climate and Index reportable segments, partially offset by decreased spending in the Analytics reportable segment. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs and market data costs, as well as higher compensation and benefits costs, primarily reflecting higher wages and salaries, as a result of increased headcount. Cost of revenues increased 14.9% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , reflecting increases across the All Other - Private Assets, ESG and Climate and Index reportable segments, partially offset by decreased spending in the Analytics reportable segment. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs, professional fees and market data costs, as well as higher compensation and benefits costs, primarily reflecting higher wages and salaries and benefits, as a result of increased headcount.
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 departments associated with acquiring new business, including product management, research, technology and sales operations. Selling and marketing expenses increased 9.6% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , reflecting increases across the ESG and Climate, All Other - Private Assets and Index reportable segments, partially offset by decreases in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, primarily relating to higher benefits and wages and salaries costs, as a result of increased headcount. Selling and marketing expenses increased 10.4% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , reflecting increases across the All Other - Private Assets, ESG and Climate and Index reportable segments, partially offset by decreases in the Analytics reportable segment. The change was primarily driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs, as a result of increased headcount. 28
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The change was also driven by higher non-compensation costs, primarily related to higher travel costs and costs associated with conferences and events.
Research and Development
R&D expenses consist of costs to develop new or enhance existing products and the costs to develop new or enhanced technologies 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 directly associated with these activities. R&D expenses decreased 8.5% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by increased capitalization of expenses related to internally developed software projects, partially offset by higher wages and salaries, driven by headcount increases. Taking into consideration investments eligible for capitalization, research and development spending increased across the All Other - Private Assets, ESG and Climate, and Index reportable segments, partially offset by decreased spending in the Analytics reportable segment. R&D expenses decreased 3.2% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by increased capitalization of expenses related to internally developed software projects. The decrease was partially offset by higher wages and salaries and benefits costs, driven by headcount increases, as well as higher non-compensation costs, reflecting increased information technology costs. Taking into consideration investments eligible for capitalization, R&D spending increased across the All Other - Private Assets, Index and ESG and Climate reportable segments, partially offset by decreased spending in the Analytics reportable segment. 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 decreased 19.4% for the three months ended
G&A expenses increased 9.7% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by increases across the All Other - Private Assets, Index and ESG and Climate reportable segments, partially offset by decreases in the Analytics reportable segment. The change was primarily driven by increases in compensation costs, as a result of increased headcount. The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Compensation and benefits$ 155,447 $ 152,540 1.9 %$ 489,527 $ 452,237 8.2 % Non-compensation expenses 65,159 63,415 2.8 % 196,273 168,786 16.3 % Amortization of intangible assets 23,375 14,105 65.7 % 67,274 59,569 12.9 % Depreciation and amortization of property, equipment and leasehold improvements 7,127 6,809 4.7 % 20,426 20,972 (2.6 %) Total operating expenses$ 251,108 $ 236,869 6.0 %$ 773,500 $ 701,564 10.3 % Compensation and Benefits Compensation and benefits costs increased 1.9% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the increase was 8.2% compared to the nine months endedSeptember 30, 2021 . The increase in both the three and nine months endedSeptember 30, 2022 was primarily driven by headcount growth across all spending categories. We had 4,767 employees as ofSeptember 30, 2022 , compared to 4,237 employees as ofSeptember 30, 2021 , reflecting a 12.5% 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 benefits costs. As of 29
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September 30, 2022 , 65.0% of our employees were located in emerging market centers compared to 62.5% as ofSeptember 30, 2021 . Adjusting for the impact of foreign currency exchange rate fluctuations, compensation and benefits costs would have increased by 9.0% and 13.3%, respectively, for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 .
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 increased 2.8% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by higher information technology costs and professional fees, partially offset by the absence of transaction costs related to the acquisition of RCA as well as decreased other non-income tax expenses as a result of favorable settlements reached in the current period.
Non-compensation expenses increased 16.3% for the nine months ended
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 capitalization of internally developed software projects recognized over their estimated useful lives. Amortization of intangible assets expense increased 65.7% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by additional amortization recognized on acquired intangible assets following the acquisition of RCA. Amortization of intangible assets expense increased 12.9% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by additional amortization recognized on acquired intangible assets following the acquisition of RCA, partially offset by the absence of intangible assets write-off costs.
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 computer and related equipment, leasehold improvements, software and furniture and fixtures over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements remained relatively flat for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 , respectively.
Other Expense (Income), Net
The following table shows our other expense (income), net for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Interest income$ (3,938) $ (396) 894.4 %$ (5,160) $ (1,129) 357.0 % Interest expense 44,162 42,137 4.8 % 125,961 119,278 5.6 % Other expense (income) 103 37,839 (99.7 %) (90) 61,616 (100.1 %) Total other expense (income), net$ 40,327 $ 79,580 (49.3 %)$ 120,711 $ 179,765 (32.9 %) Other expense (income), net decreased 49.3% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by the absence of debt extinguishment costs, as well as higher interest income. The decrease was partially offset by higher interest expense associated with higher average outstanding debt balances. 30
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Other expense (income), net decreased 32.9% for the nine months ended
Income Taxes
The following table shows our income tax provision and effective tax rate for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Provision for income taxes 52,612 30,774 71.0 % 122,577 80,255 52.7 % Effective tax rate 19.5 % 15.3 % 27.5 % 15.8 % 13.1 % 20.6 % The effective tax rate of 19.5% for the three months endedSeptember 30, 2022 reflects the Company's estimate of the effective tax rate for the period. The level of discrete items was not impactful to the effective tax rate for the period. The effective tax rate of 15.3% for the three months endedSeptember 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling$15.1 million , primarily related to the$9.6 million tax impact of loss on debt extinguishment recognized during the period with respect to the redemption of the 2027 Senior Notes. Also included in the discrete items is a$3.8 million benefit related to prior year settlements,$1.3 million of excess tax benefits recognized on share-based compensation vested during the period and$0.4 million of tax benefits related to other prior year items. The effective tax rate of 15.8% for the nine months endedSeptember 30, 2022 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling$28.2 million , primarily related to$28.4 million of excess tax benefits recognized on share-based compensation vested during the period. The effective tax rate of 13.1% for the nine months endedSeptember 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling$49.3 million , primarily related to$22.7 million of excess tax benefits recognized on share-based compensation vested during the period and$15.2 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the Company's 2027 Senior Notes and 2026 Senior Notes. Also included in the discrete items is a$5.1 million benefit related to prior year settlements, a$2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in theUK corporate tax rate, a$2.0 million benefit related to the filing of prior year refund claims and$2.0 million of tax benefits related to other prior year items.
Net Income
The following table shows our net income for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Net income$ 216,592 $ 169,876 27.5 %$ 655,602 $ 532,118 23.2 % As a result of the factors described above, net income increased 27.5% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , and increased 23.2% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . 31
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Weighted Average Shares and Common Shares Outstanding
The following table shows our weighted average shares outstanding for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Weighted average shares outstanding: Basic 80,500 82,470 (2.4 %) 81,001 82,521 (1.8 %) Diluted 80,874 83,554 (3.2 %) 81,481 83,446 (2.4 %) The following table shows our common shares outstanding for the periods indicated: As of September 30, December 31, (in thousands) 2022 2021 % Change Common shares outstanding 80,121 82,439 (2.8 %) The decrease in weighted average shares and common shares outstanding primarily reflects 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, including, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs. "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, including, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs. Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures for management to assess 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 the non-GAAP Adjusted EBITDA measure for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating revenues$ 560,639 $ 517,099 8.4 %$ 1,672,390 $ 1,493,702 12.0 % Adjusted EBITDA expenses 219,678 210,504 4.4 % 681,741 615,572 10.7 % Adjusted EBITDA$ 340,961 $ 306,595 11.2 %$ 990,649 $ 878,130 12.8 % Adjusted EBITDA margin % 60.8 % 59.3 % 59.2 % 58.8 % Operating margin % 55.2 % 54.2 % 53.7 % 53.0 %
The change in Adjusted EBITDA margin reflects changes in the rate of growth of Adjusted EBITDA expenses as compared to the rate of growth of operating revenues, driven by the factors previously described.
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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: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Index Adjusted EBITDA$ 245,967 $ 245,587 0.2 %$ 737,012 $ 698,934 5.4 % Analytics Adjusted EBITDA 67,634 50,291 34.5 % 181,484 145,836 24.4 % ESG and Climate Adjusted EBITDA 15,910 9,820 62.0 % 42,334 20,585 105.7 % All Other - Private Assets Adjusted EBITDA 11,450 897 1176.5 % 29,819 12,775 133.4 % Consolidated Adjusted EBITDA 340,961 306,595 11.2 % 990,649 878,130 12.8 % Amortization of intangible assets 23,375 14,105 65.7 % 67,274 59,569 12.9 % Depreciation and amortization of property, equipment and leasehold improvements 7,127 6,809 4.7 % 20,426 20,972 (2.6 %) Acquisition-related integration and transaction costs (1) 928 5,451 (83.0 %) 4,059 5,451 (25.5 %) Operating income 309,531 280,230 10.5 % 898,890 792,138 13.5 % Other expense (income), net 40,327 79,580 (49.3 %) 120,711 179,765 (32.9 %) Provision for income taxes 52,612 30,774 71.0 % 122,577 80,255 52.7 % Net income$ 216,592 $ 169,876 27.5 %$ 655,602 $ 532,118 23.2 % ___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Index Adjusted EBITDA expenses$ 76,273 $ 75,916 0.5 %$ 236,936 $ 221,023 7.2 % Analytics Adjusted EBITDA expenses 77,281 86,007 (10.1 %) 244,912 260,381 (5.9 %) ESG and Climate Adjusted EBITDA expenses 41,685 33,871 23.1 % 122,418 97,164 26.0 % All Other - Private Assets Adjusted EBITDA expenses 24,439 14,710 66.1 % 77,475 37,004 109.4 % Consolidated Adjusted EBITDA expenses 219,678 210,504 4.4 % 681,741 615,572
10.7 %
Amortization of intangible assets 23,375 14,105 65.7 % 67,274 59,569 12.9 % Depreciation and amortization of property, equipment and leasehold improvements 7,127 6,809 4.7 % 20,426 20,972 (2.6 %) Acquisition-related integration and transaction costs (1) 928 5,451 (83.0 %) 4,059 5,451 (25.5 %) Total operating expenses$ 251,108 $ 236,869 6.0 %$ 773,500 $ 701,564 10.3 % ___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
The discussion of the segment results is presented below.
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Table of Contents Segment Results Index Segment The following table presents the results for the Index segment for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating revenues: Recurring subscriptions$ 185,531 $ 165,310 12.2 %$ 539,740 $ 480,488 12.3 % Asset-based fees 125,620 141,745 (11.4 %) 402,889 404,593 (0.4 %) Non-recurring 11,089 14,448 (23.2 %) 31,319 34,876 (10.2 %) Operating revenues total 322,240 321,503 0.2 % 973,948 919,957 5.9 % Adjusted EBITDA expenses 76,273 75,916 0.5 % 236,936 221,023 7.2 % Adjusted EBITDA$ 245,967 $ 245,587 0.2 %$ 737,012 $ 698,934 5.4 % Adjusted EBITDA margin % 76.3 % 76.4 % 75.7 % 76.0 % Index operating revenues increased 0.2% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by growth from recurring subscriptions, partially offset by a decline in asset-based fees and non-recurring revenues. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 0.7%. Operating revenues from recurring subscriptions increased 12.2% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products. Operating revenues from asset-based fees decreased 11.4% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , driven by a decline in revenues from ETFs linked toMSCI equity indexes and non-ETF indexed funds linked toMSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked toMSCI indexes. Operating revenues from ETFs linked toMSCI equity indexes and non-ETF indexed funds linked toMSCI indexes decreased by 14.3% and 14.9%, respectively, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from exchange traded futures and options contracts linked toMSCI indexes increased 15.6%, driven by volume increases. Index segment Adjusted EBITDA expenses increased 0.5% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by higher non-compensation expenses across the cost of revenues, selling and marketing and R&D expense categories, partially offset by lower non-compensation expenses in the G&A expense category. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 6.1%. Index operating revenues increased 5.9% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by growth from recurring subscriptions. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 6.2%. Operating revenues from recurring subscriptions increased 12.3% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products. Operating revenues from asset-based fees decreased 0.4% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , driven by a decline in revenues from ETFs linked toMSCI equity indexes, partially offset by an increase in revenues from exchange traded futures and options contracts. Operating revenues from ETFs linked toMSCI equity indexes decreased by 3.6%, primarily driven by a decrease in average basis point fees, partially offset by an increase in average AUM. Operating revenues from exchange traded futures and options contracts linked toMSCI indexes increased by 17.3%, driven by volume increases. Index segment Adjusted EBITDA expenses increased 7.2% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , reflecting higher compensation and non-compensation expenses to support growth across all 34
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expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 11.1%.
Analytics Segment The following table presents the results for the Analytics segment for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating revenues: Recurring subscriptions$ 142,751 $ 134,320 6.3 %$ 420,047 $ 399,360 5.2 % Non-recurring 2,164 1,978 9.4 % 6,349 6,857 (7.4 %) Operating revenues total 144,915 136,298 6.3 % 426,396 406,217 5.0 % Adjusted EBITDA expenses 77,281 86,007 (10.1 %) 244,912 260,381 (5.9 %) Adjusted EBITDA$ 67,634 $ 50,291 34.5 %$ 181,484 $ 145,836 24.4 % Adjusted EBITDA margin % 46.7 % 36.9 % 42.6 % 35.9 % Analytics operating revenues increased 6.3% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 7.5%. Analytics segment Adjusted EBITDA expenses decreased 10.1% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by lower compensation expenses across all expense activity categories, as a result of lower incentive compensation and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 5.7%. Analytics operating revenues increased 5.0% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 5.8%. Analytics segment Adjusted EBITDA expenses decreased 5.9% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by lower compensation expenses across all expense activity categories, as a result of lower incentive compensation and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 2.9%.
ESG and Climate Segment
The following table presents the results for the ESG and Climate segment for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating revenues: Recurring subscriptions$ 56,353 $ 42,592 32.3 %$ 160,962 $ 115,299 39.6 % Non-recurring 1,242 1,099 13.0 % 3,790 2,450 54.7 % Operating revenues total 57,595 43,691 31.8 % 164,752 117,749 39.9 % Adjusted EBITDA expenses 41,685 33,871 23.1 % 122,418 97,164 26.0 % Adjusted EBITDA$ 15,910 $ 9,820 62.0 %$ 42,334 $ 20,585 105.7 % Adjusted EBITDA margin % 27.6 % 22.5 % 25.7 % 17.5 % 35
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ESG and Climate operating revenues increased 31.8% for the three months ended
ESG and Climate segment Adjusted EBITDA expenses increased 23.1% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by higher compensation expenses across all spending categories, as a result of increased wages and salaries and benefits costs, due to higher headcount, partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 30.4%. ESG and Climate operating revenues increased 39.9% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 49.4%. ESG and Climate segment Adjusted EBITDA expenses increased 26.0% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , reflecting higher compensation and non-compensation expenses to support growth across all expense categories. The increase was primarily driven by increased wages and salaries, incentive compensation and benefits costs, as a result of increased headcount, as well as increased professional fees and information technology costs. The increase was partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 31.2%.
All Other - Private Assets Segment
The following table presents the results for the All Other - Private Assets segment for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) 2022 2021 % Change 2022 2021 % Change Operating revenues: Recurring subscriptions$ 35,581 $ 15,418 130.8 %$ 106,276 $ 48,355 119.8 % Non-recurring 308 189 63.0 % 1,018 1,424 (28.5 %) Operating revenues total 35,889 15,607 130.0 % 107,294 49,779 115.5 % Adjusted EBITDA expenses 24,439 14,710 66.1 % 77,475 37,004 109.4 % Adjusted EBITDA$ 11,450 $ 897 1176.5 %$ 29,819 $ 12,775 133.4 % Adjusted EBITDA margin % 31.9 % 5.7 % 27.8 % 25.7 % All Other - Private Assets operating revenues increased 130.0% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by revenues attributable to the acquisition of RCA as well as growth in Enterprise Analytics, Global Intel and Climate Value-at-Risk products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other - Private Assets operating revenues would have increased 30.6%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other - Private Assets operating revenues would have increased 13.9% and 146.7%, respectively. All Other - Private Assets segment Adjusted EBITDA expenses increased 66.1% for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , reflecting higher compensation and non-compensation across all spending categories, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have decreased 1.6% when excluding the impact of acquisitions and increased 79.3% when excluding the impact of foreign currency exchange rate fluctuations. All Other - Private Assets operating revenues increased 115.5% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily driven by revenues attributable to the acquisition of RCA as well as growth in Global Intel, Climate Value-at-Risk and Enterprise Analytics products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other - Private Assets operating revenues would have increased 11.7%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other - Private Assets operating revenues would have decreased 0.3% and increased 127.5%, respectively. 36
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All Other - Private Assets segment Adjusted EBITDA expenses increased 109.4% for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , reflecting higher compensation and non-compensation across all spending categories, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have increased 3.4% when excluding the impact of acquisitions and increased 120.9% when excluding the impact of foreign currency exchange rate fluctuations.
"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, or reach the end of the committed subscription period, 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 toRun 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 fromRun 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, non-renewal or an indication the client does not intend to continue their subscription 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 inRun Rate . The actual amount of recurring revenues we will realize over the following 12 months will differ fromRun 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 underU.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
As of September 30, September 30, % (in thousands) 2022 2021 Change Index: Recurring subscriptions$ 750,818 $
667,023 12.6 % Asset-based fees 479,399 550,230 (12.9 %) Index total 1,230,217 1,217,253 1.1 % Analytics 597,752 568,932 5.1 % ESG and Climate 237,930 178,398 33.4 % All Other - Private Assets 137,401 131,678 4.3 % Total Run Rate$ 2,203,300 $ 2,096,261 5.1 % Recurring subscriptions total$ 1,723,901 $ 1,546,031 11.5 % Asset-based fees 479,399 550,230 (12.9 %) Total Run Rate$ 2,203,300 $ 2,096,261 5.1 %
Total
Run Rate from Index recurring subscriptions increased 12.6%, primarily driven by strong growth from market cap-weighted, factor, ESG and climate, and custom and specialized Index products. The increase reflected growth across all regions and client segments.Run Rate from Index asset-based fees decreased 12.9%, primarily driven by lower AUM in ETFs linked toMSCI equity indexes and non-ETF indexed funds linked toMSCI indexes, partially offset by higher exchange traded futures and options volume.Run Rate from Analytics products increased 5.1%, primarily driven by growth in both Equity Analytics and Multi-Asset Class products. Adjusting for the impact of foreign currency exchange rate fluctuations, AnalyticsRun Rate would have increased 8.1%.Run Rate from ESG and Climate products increased 33.4%, driven by strong growth in Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and ClimateRun Rate would have increased 41.7%.Run Rate from All Other - Private Assets increased 4.3%, primarily driven by growth in the RCA business as well as growth in Global Intel, Enterprise Analytics and Climate Value-at-Risk products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other - Private AssetsRun Rate would have increased 11.9%. Sales Sales represents the annualized value of products and services clients commit to purchase fromMSCI 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 ofRun 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 toRun Rate . Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or 38
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reductions in price, resulting in reductions toRun 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 toRun 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:
Three Months Ended Nine Months Ended September 30, September 30, % September 30, September 30, % (in thousands) 2022 2021 Change 2022 2021 Change New recurring subscription sales Index$ 24,130 $ 19,546 23.5 %$ 74,493 $ 66,037 12.8 % Analytics 17,568 15,889 10.6 % 50,391 44,381 13.5 % ESG and Climate 14,270 17,310 (17.6 %) 55,617 46,706 19.1 % All Other - Private Assets 5,218 2,479 110.5 % 16,490 6,023 173.8 % New recurring subscription sales total 61,186 55,224 10.8 % 196,991 163,147 20.7 % Subscription cancellations Index (5,388) (6,203) (13.1 %) (18,468) (18,192) 1.5 % Analytics (6,029) (9,213) (34.6 %) (22,523) (25,188) (10.6 %) ESG and Climate (1,303) (1,338) (2.6 %) (3,315) (3,636) (8.8 %) All Other - Private Assets (1,744) (1,296) 34.6 % (5,080) (2,881) 76.3 % Subscription cancellations total (14,464) (18,050) (19.9 %) (49,386) (49,897) (1.0 %) Net new recurring subscription sales Index 18,742 13,343 40.5 % 56,025 47,845 17.1 % Analytics 11,539 6,676 72.8 % 27,868 19,193 45.2 % ESG and Climate 12,967 15,972 (18.8 %) 52,302 43,070 21.4 % All Other - Private Assets 3,474 1,183 193.7 % 11,410 3,142 263.1 % Net new recurring subscription sales total 46,722 37,174 25.7 % 147,605 113,250 30.3 % Non-recurring sales Index 13,375 17,366 (23.0 %) 41,357 39,340 5.1 % Analytics 2,505 2,377 5.4 % 8,412 8,123 3.6 % ESG and Climate 1,375 1,090 26.1 % 3,553 2,927 21.4 % All Other - Private Assets 83 130 (36.2 %) 690 1,201 (42.5 %) Non-recurring sales total 17,338 20,963 (17.3 %) 54,012 51,591 4.7 % Gross sales Index$ 37,505 $ 36,912 1.6 %$ 115,850 $ 105,377 9.9 % Analytics 20,073 18,266 9.9 % 58,803 52,504 12.0 % ESG and Climate 15,645 18,400 (15.0 %) 59,170 49,633 19.2 % All Other - Private Assets 5,301 2,609 103.2 % 17,180 7,224 137.8 % Total gross sales$ 78,524 $ 76,187 3.1 %$ 251,003 $ 214,738 16.9 % Net sales Index$ 32,117 $ 30,709 4.6 %$ 97,382 $ 87,185 11.7 % Analytics 14,044 9,053 55.1 % 36,280 27,316 32.8 % ESG and Climate 14,342 17,062 (15.9 %) 55,855 45,997 21.4 % All Other - Private Assets 3,557 1,313 170.9 % 12,100 4,343 178.6 % Total net sales$ 64,060 $ 58,137 10.2 %$ 201,617 $ 164,841 22.3 %
A significant portion of
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Retention Rate
The following table presents our Retention Rate by reportable segment for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Index 96.9% 96.0% 96.5% 96.1% Analytics 95.9% 93.4% 94.9% 94.0% ESG and Climate 97.4% 96.1% 97.8% 96.5% All Other - Private Assets (1) 94.8% 91.0% 95.0% 91.2% Total 96.4% 94.5% 95.9% 94.9% ___________________________ (1)Retention rate for All Other - Private Assets excluding the impact of RCA was 95.7% and 95.8% for the three and nine months endedSeptember 30, 2022 , respectively. Retention rate for All Other - Private Assets excluding the impact of RCA was 93.7% and 94.2% for the three and nine months endedSeptember 30, 2021 , respectively. Retention Rate is an important metric because subscription cancellations decrease ourRun Rate and ultimately our future operating revenues over time. The annual Retention Rate represents the retained subscriptionRun Rate (subscriptionRun Rate at the beginning of the fiscal year less actual cancels during the year) as a percentage of the subscriptionRun Rate at the beginning of the fiscal year. 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 or discontinue the subscription 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 subscriptionRun 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 Assets 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 ourRun 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 since the end of the fiscal year endedDecember 31, 2021 or critical accounting estimates applied in the fiscal year endedDecember 31, 2021 .
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 make repurchases of our common stock. In connection with our 40
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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
As ofSeptember 30, 2022 , we had an aggregate of$4,200 million in Senior Notes outstanding. In addition, under the Credit Agreement, we had as ofSeptember 30, 2022 : (i) an aggregate of$350 million in Tranche A Term Loans outstanding under the TLA Facility and (ii)$500 million of undrawn borrowing capacity under the revolving credit facility. See Note 8, "Commitments and Contingencies," of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our outstanding indebtedness and revolving credit facility. The Senior Notes and the 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 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 Computershare, National Association, as trustee and successor toWells Fargo Bank, National Association , 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 Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and/or the ability of our existing or future subsidiaries to:
•incur liens and further negative pledges;
•incur additional indebtedness or prepay, redeem or repurchase indebtedness;
•make loans or hold investments;
•merge, dissolve, liquidate, consolidate with or into another person;
•enter into acquisition transactions;
•enter into sale/leaseback transactions;
•issue disqualified capital stock;
•sell, transfer or dispose of assets;
•pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;
•create new subsidiaries;
•permit certain restrictions affecting our subsidiaries;
•change the nature of our business, accounting policies or fiscal periods;
•enter into any transactions with affiliates other than on an arm's-length basis; and
•amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.
The 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 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 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 Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis not to exceed 4.25:1.00 (or 4.50:1.00 for two fiscal quarters following a material acquisition) and (2) the minimum Consolidated Interest 41
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Coverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis of at least 4.00:1.00. As ofSeptember 30, 2022 , our Consolidated Leverage Ratio was 3.14:1.00 and our Consolidated Interest Coverage Ratio was 8.73:1.00. Our non-guarantor subsidiaries under the Senior Notes and the Credit Agreement 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$1,342.4 million , or 60.4%, of our total revenue for the trailing 12 months endedSeptember 30, 2022 , approximately$526.1 million , or 44.6%, of our consolidated operating income for the trailing 12 months endedSeptember 30, 2022 , and approximately$932.0 million , or 19.5%, of our consolidated total assets (excluding intercompany assets) and$738.7 million , or 12.6%, of our consolidated total liabilities, in each case as ofSeptember 30, 2022 .
Share Repurchases
The following table provides information with respect to repurchases of the Company's common stock pursuant to open market repurchases:
Average Total Dollar Price Number of Value of Nine Months Ended Paid Per Shares Shares (in thousands except per share data) Share Repurchased Repurchased September 30, 2022$ 473.26 2,567$ 1,214,695 September 30, 2021$ 407.70 330$ 134,340
As of
Cash Dividend
OnOctober 24, 2022 , the Board of Directors declared a quarterly cash dividend of$1.25 per share for the three months endingDecember 31, 2022 . The fourth quarter 2022 dividend is payable onNovember 30, 2022 to shareholders of record as of the close of trading onNovember 10, 2022 .
Cash Flows
The following table presents the Company's cash and cash equivalents as of the dates indicated: As of September 30, December 31, (in thousands) 2022 2021 Cash and cash equivalents$ 867,112 $ 1,421,449 We typically seek to maintain minimum cash balances globally of approximately$225.0 million to$275.0 million for general operating purposes. As ofSeptember 30, 2022 andDecember 31, 2021 ,$342.0 million and$542.2 million , respectively, of the Company's cash and cash equivalents were held by foreign subsidiaries. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. We believe the global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes or other needs, including acquisitions or expansion of our products. We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing revolving credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents, will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter. 42
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Net Cash Provided by (Used In) Operating, Investing and Financing Activities Nine Months Ended September 30, (in thousands) 2022 2021 Net cash provided by operating activities$ 779,942 $ 656,405 Net cash used in investing activities (52,413) (985,879) Net cash (used in) provided by financing activities (1,252,827) 321,249 Effect of exchange rate changes (29,039) (7,632) Net (decrease) increase in cash$ (554,337) $ (15,857)
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. The year-over-year change was primarily driven by higher cash collections from customers, partially offset by higher payments for cash expenses, mainly reflecting higher cash compensation expenses, information technology costs, professional fees and market data costs. Our primary uses of cash from operating activities are for the payment of cash compensation expenses, interest expenses, income taxes, technology costs, professional fees, market data costs and office rent. 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
The year-over-year change was primarily driven by the absence of cash outflows associated with acquisitions, partially offset by higher capitalized software development costs.
Cash Flows From Financing Activities
The year-over-year change was primarily driven by the impact of lower proceeds from borrowings and higher share repurchases, partially offset by lower repayments on debt.
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