MSCI, INC. 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, 2019 (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 services for the global investment community. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, our actionable solutions1 power better investment decisions by enabling our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. Investors all over the world use our tools and services to gain insight and improve transparency throughout their investment processes, including to help define their investment universe, inform and analyze their asset allocation and portfolio construction decisions, measure and manage portfolio performance and risk, conduct performance attribution, implement sustainable and other investment strategies, design and issue ETFs and other index-enabled financial products, and facilitate reporting to stakeholders. Our industry-leading, research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG research and ratings; and real estate benchmarks, return-analytics and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients' dynamic and complex needs. We are flexible in the delivery of our content and capabilities, much of which can be accessed by our clients through multiple channels and platforms.
We are focused on staying at the forefront of investment trends to address the evolving needs of our clients in a changing industry. In order to most effectively serve our clients, we are committed to driving an integrated solutions-based approach, achieving service excellence, enhancing our differentiated research and content, and delivering flexible, cutting-edge technology and platforms.
Our clients comprise a wide spectrum of the global investment industry and include the following key client types:
• Asset owners (pension funds, endowments, foundations, central banks,
sovereign wealth funds, family offices and insurance companies)
• Asset managers (institutional funds and accounts, mutual funds, hedge
funds, ETFs, insurance products, private banks and real estate investment
trusts)
• Financial intermediaries (banks, broker-dealers, exchanges, custodians,
trust companies and investment consultants)
• Wealth managers (including an increasing number of "robo-advisors")
As of March 31, 2020 , we served over 7,700 clients in more than 85 countries. To
calculate the number of clients, we use the shipping address of the ultimate
customer utilizing the product, which counts affiliates, user locations or
business units within a single organization as separate clients. If we aggregate
all related clients under their respective parent entity, the number of clients
would be over 4,200, as of March 31, 2020 . As of March 31, 2020 , we had offices
in more than 30 cities across more than 20 countries to help serve our diverse
client base, with 47.7% of our revenues coming from clients in the Americas ,
36.7% in EMEA and 15.6% in Asia and Australia .
Our principal business model is generally to license annual, recurring
subscriptions for the majority of our Index, Analytics and ESG products and
services for a fee due in advance of the service period. We also license annual
recurring subscriptions for the majority of our Real Estate products for a fee
which is primarily paid in arrears after the product is delivered, with the
exception of the Market Information product for which the fees are generally
paid in advance. A portion of our fees comes from clients who use our indexes as
the basis for index-linked investment products. Such fees are primarily based on
a client's assets under management ("AUM"), trading volumes and fee levels.
1 The term "solutions" as used throughout this Quarterly Report on Form 10-Q
refers to the use of our products or services by our clients to help them
achieve their objectives.
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In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under accounting principles generally accepted inthe United States ("GAAP") as well as non-GAAP measures, for the Company as a whole and by operating segment. In addition, we focus on operating metrics, includingRun Rate , subscription sales and Retention Rate, to manage the business. Our business is not highly capital intensive and, as such, we expect to continue to convert a high percentage of our profits into excess cash in the future. Our growth strategy includes: (a) expanding leadership in research-enhanced content, (b) strengthening existing and new client relationships by providing solutions, (c) improving access to our solutions through cutting-edge technology and platforms, (d) expanding value-added service offerings and (e) executing strategic relationships and acquisitions with complementary content and technology companies. In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period. While operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations, the underlying AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. Approximately two-thirds of the AUM are 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. The discussion of our results of operations for the three months endedMarch 31, 2020 and 2019 are presented below. The results of operations for interim periods may not be indicative of future results. Results of Operations
Three Months Ended
The following table presents the results of operations for the periods
indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands, except per share data)
Operating revenues $ 416,780 $ 371,381 $ 45,399 12.2 %
Operating expenses:
Cost of revenues 74,609 82,346 (7,737 ) (9.4 %)
Selling and marketing 55,549 56,048 (499 ) (0.9 %)
Research and development 26,562 23,172 3,390 14.6 %
General and administrative 30,833 27,497 3,336 12.1 %
Amortization of intangible assets 13,776 11,793 1,983 16.8 %
Depreciation and amortization of property,
equipment and leasehold improvements 7,567 7,850 (283 ) (3.6 %)
Total operating expenses 208,896 208,706 190 0.1 %
Operating income 207,884 162,675 45,209 27.8 %
Other expense (income), net 45,035 34,383 10,652 31.0 %
Income before provision for income taxes 162,849 128,292 34,557 26.9 %
Provision for income taxes 14,724 (49,900 ) 64,624 129.5 %
Net income $ 148,125 $ 178,192 Earnings per basic common share$ 1.75 $ 2.11
Earnings per diluted common share
$ (0.35 ) (16.8 %) Operating margin 49.9 % 43.8 % Operating Revenues Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics and All Other, which includes the ESG and Real Estate product lines. 24 --------------------------------------------------------------------------------
The following table presents operating revenues by type for the periods
indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Recurring subscriptions $ 304,425 $ 282,364 $ 22,061 7.8 %
Asset-based fees 100,196 81,808 18,388 22.5 %
Non-recurring 12,159 7,209 4,950 68.7 %
Total operating revenues
Total operating revenues grew 12.2% to$416.8 million for the three months endedMarch 31, 2020 compared to$371.4 million for the three months endedMarch 31, 2019 . Adjusting for the impact of foreign currency exchange rate fluctuations, total operating revenues would have increased 12.4% for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . As a result of the impact of the COVID-19 pandemic, growth in operating revenues from recurring subscriptions may moderate in the near term. In addition, the volatility in the global equity markets may adversely impact AUM levels which in turn may impact future operating revenues from asset-based fees. Operating revenues from recurring subscriptions increased 7.8% to$304.4 million for the three months endedMarch 31, 2020 compared to$282.4 million for the three months endedMarch 31, 2019 , primarily driven by growth across all operating segments. Adjusting for the impact of foreign currency exchange rate fluctuations, revenues from recurring subscriptions would have increased 8.0% for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Operating revenues from asset-based fees increased 22.5% to$100.2 million for the three months endedMarch 31, 2020 compared to$81.8 million for the three months endedMarch 31, 2019 . The increase in asset-based fees was driven by strong growth across all types of index-linked investment products, including an increase in revenues from exchange traded futures and options contracts linked toMSCI indexes, primarily driven by an increase in total trading volumes. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF passive products linked toMSCI indexes, primarily driven by an increase in average AUM. In addition, the increase in revenues from asset-based fees was driven by revenue growth from ETFs linked toMSCI indexes, driven by a 14.5% increase in average AUM for equity ETFs linked toMSCI indexes, partially offset by the impact of a change in product mix. Average AUM for equity ETFs linked toMSCI indexes for the three months endedMarch 31, 2020 was higher than AUM for equity ETFs linked toMSCI indexes as of the period endedMarch 31, 2020 as a result of depressed AUM levels in the second half of the quarter, primarily due to the negative impact of the COVID-19 pandemic on global equity markets. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. The following table presents the value of AUM in equity ETFs linked toMSCI indexes and the sequential change of such assets as of the end of each of the periods indicated: Period Ended 2019 2020 March June September December March (in billions) 31, 30, 30, 31, 31, AUM in equity ETFs linked toMSCI indexes(1), (2), (3)$ 802.2 $ 819.3 $ 815.0
Sequential Change in Value Market Appreciation/(Depreciation)$ 78.3 $ 14.9 $ (9.2 ) $ 63.5 $ (216.5 ) Cash Inflows 28.3 2.2 4.9 55.9 (8.4 ) Total Change$ 106.6 $ 17.1 $ (4.3 ) $ 119.4 $ (224.9 )
The following table presents the average value of AUM in equity ETFs linked to
Quarterly Average
2019 2020
(in billions) March June September December March
AUM in equity ETFs linked to MSCI
indexes(1), (2), (3) $ 766.0 $ 811.4 $ 810.9 $ 869.1 $ 877.1 (1) The historical values of the AUM in equity ETFs linked to our indexes as of
the last day of the month and the monthly average balance can be found under
the link "AUM in equity ETFs Linked to
Relations homepage at http://ir.msci.com. This information is updated
mid-month each month. Information contained on our website is not
incorporated by reference into this Quarterly Report on Form 10-Q or any
other report filed with the
AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM
amounts presented.
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(2) The values for periods prior to
Bloomberg and
were based on data from Refinitiv and
reported on a delayed basis.
(3) The value of AUM in equity ETFs linked to
multiplying the equity ETFs net asset value by the number of shares
outstanding.
For the three months endedMarch 31, 2020 , the average value of AUM in equity ETFs linked toMSCI equity indexes was$877.1 billion , up$111.1 billion , or 14.5%, from$766.0 billion for the three months endedMarch 31, 2019 . Non-recurring revenues increased 68.7% to$12.2 million for the three months endedMarch 31, 2020 compared to$7.2 million for the three months endedMarch 31, 2019 , primarily driven by growth in Index products, which increased$3.9 million , or 74.3%.
The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Operating revenues:
Index
Recurring subscriptions $ 139,840 $ 127,674 $ 12,166 9.5 %
Asset-based fees 100,196 81,808 18,388 22.5 %
Non-recurring 9,220 5,291 3,929 74.3 %
Index total 249,256 214,773 34,483 16.1 %
Analytics
Recurring subscriptions 124,065 120,110 3,955 3.3 %
Non-recurring 1,443 1,325 118 8.9 %
Analytics total 125,508 121,435 4,073 3.4 %
All Other
Recurring subscriptions 40,520 34,580 5,940 17.2 %
Non-recurring 1,496 593 903 152.3 %
All Other total 42,016 35,173 6,843
19.5 %
Total operating revenues
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.
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Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.
The following table presents operating expenses by activity category for the
periods indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Operating expenses:
Cost of revenues $ 74,609 $ 82,346 $ (7,737 ) (9.4 %)
Selling and marketing 55,549 56,048 (499 ) (0.9 %)
Research and development 26,562 23,172 3,390 14.6 %
General and administrative 30,833 27,497 3,336 12.1 %
Amortization of intangible assets 13,776 11,793 1,983 16.8 %
Depreciation and amortization of property,
equipment and leasehold improvements 7,567 7,850 (283 ) (3.6 %)
Total operating expenses $ 208,896 $ 208,706 $ 190 0.1 %
Total operating expenses increased 0.1% to $208.9 million for the three months
ended March 31, 2020 compared to $208.7 million for the three months ended
March 31, 2019 . Adjusting for the impact of foreign currency exchange rate
fluctuations, total operating expenses would have increased 1.1% for the three
months ended March 31, 2020 compared to the three months ended March 31, 2019 .
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, 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 decreased 9.4% to$74.6 million for the three months endedMarch 31, 2020 compared to$82.3 million for the three months endedMarch 31, 2019 , reflecting decreases across the Analytics and Index reportable segments. The change was driven by the absence of$7.0 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019, and decreases in compensation and benefits costs, relating to lower incentive compensation and wages and salaries, partially offset by higher benefits costs and non-compensation costs, including information technology and market data costs.
Selling and Marketing
Selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations. Selling and marketing expenses decreased 0.9% to$55.5 million for the three months endedMarch 31, 2020 compared to$56.0 million for the three months endedMarch 31, 2019 , reflecting a decrease in the Index reportable segment. The change was driven by the absence of$4.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019, partially offset by increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs.
Research and Development
R&D expenses consist of costs to develop new or enhance existing products and costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support associated with these efforts. R&D expenses increased 14.6% to$26.6 million for the three months endedMarch 31, 2020 compared to$23.2 million for the three months endedMarch 31, 2019 , reflecting higher investments across all three reportable segments. The change was driven by increases in compensation and benefits costs, including higher benefits, incentive compensation, severance, and wages and salaries, as well as increases in non-compensation costs, primarily due to higher professional fees and occupancy costs. 27 --------------------------------------------------------------------------------
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 increased 12.1% to$30.8 million for the three months endedMarch 31, 2020 compared to$27.5 million for the three months endedMarch 31, 2019 , reflecting increases across all three reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, benefits costs, and wages and salaries, partially offset by the absence of$3.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized in 2019. The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated: Three Months Ended March 31, 2020 2019 Increase/(Decrease) (in thousands) Compensation and benefits$ 137,262 $ 142,173 $ (4,911 ) (3.5 %) Non-compensation expenses 50,291 46,890 3,401 7.3 % Amortization of intangible assets 13,776 11,793 1,983 16.8 % Depreciation and amortization of property, equipment and leasehold improvements 7,567 7,850 (283 ) (3.6 %) Total operating expenses$ 208,896 $ 208,706 $ 190 0.1 % Compensation and benefits costs are our most significant expense and typically represent approximately 65% of operating expenses or more than 70% of Adjusted EBITDA expenses. The incentive compensation component of operating expenses is aligned to a number of financial and operating metrics. In the scenario that operating revenue growth and profitability moderates as a result of the impact of the COVID-19 pandemic, the incentive compensation component is expected to decrease. A significant portion of the non-compensation component of operating expenses is fixed in nature. However, the discretionary non-compensation component could be reduced in the near-term in the scenario that operating revenue growth moderates as a result of COVID-19 pandemic. We had 3,459 and 3,179 employees as ofMarch 31, 2020 and 2019, respectively, reflecting an 8.8% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses. As ofMarch 31, 2020 , 63.3% of our employees were located in emerging market centers compared to 62.0% as ofMarch 31, 2019 .
Compensation and benefits costs decreased 3.5% to
Non-compensation expenses increased 7.3% to
Amortization of Intangible Assets
Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects recognized over their estimated useful lives. Amortization of intangible assets expense increased 16.8% to$13.8 million for the three months endedMarch 31, 2020 compared to$11.8 million for the three months endedMarch 31, 2019 , primarily driven by higher amortization of internally developed capitalized software.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements consists of expenses related to depreciating or amortizing the cost of furniture and fixtures, computer and related equipment and leasehold improvements over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements of$7.6 million for the three months endedMarch 31, 2020 remained consistent compared to the three months endedMarch 31, 2019 . 28
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Other Expense (Income), Net Other expense (income), net increased 31.0% to$45.0 million for the three months endedMarch 31, 2020 compared to$34.4 million for the three months endedMarch 31, 2019 . The increase was primarily driven by the$10.0 million loss on debt extinguishment associated with the redemption of the remaining$300.0 million aggregate principal amount of the 2024 Senior Notes, which included approximately$7.9 million of call premium paid in accordance with the redemption prices set forth in the indenture in respect of the 2024 Senior Notes and the write-off of approximately$2.1 million of unamortized costs associated with the remaining 2024 Senior Notes. In addition, the increase reflects higher interest expense associated with higher outstanding debt during the three months endedMarch 31, 2020 , partially offset by higher foreign currency exchange gains.
Given that we have elected a three-month reporting lag in recognizing our
proportionate share of Burgiss' earnings, we will start recognizing our
proportionate share of Burgiss' earnings, net of the amortization related to our
investment in Burgiss in the three months ending
Income Taxes
The Company's provision for income taxes was an expense of$14.7 million and a benefit of$49.9 million for the three months endedMarch 31, 2020 and 2019, respectively. These amounts reflect effective tax rates of 9.0% and negative 38.9% for the three months endedMarch 31, 2020 and 2019, respectively. The effective tax rate of 9.0% for the three months endedMarch 31, 2020 reflects the Company's estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling$22.4 million . For the three months endedMarch 31, 2020 , these discrete items primarily related to$18.9 million of excess tax benefits recognized on share-based compensation vested during the period and$2.6 million related to the tax impact of loss on debt extinguishment recognized during the period. Also included in the discrete items is a$0.8 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings. The effective tax rate of negative 38.9% for the three months endedMarch 31, 2019 reflected the Company's estimate of the effective tax rate for the period and was impacted by certain discrete items totaling$77.8 million . For the three months endedMarch 31, 2019 , these discrete items primarily related to$66.6 million of excess tax benefits recognized upon vesting during the period of the 2016 Multi-Year PSUs and$9.8 million of excess tax benefits on other share-based compensation vested during the period.
Net Income
As a result of the factors described above, net income for the three months
ended
Weighted Average Shares
The weighted average shares outstanding used to calculate basic and diluted
earnings per share remained consistent for the three months ended
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 the impact
related to the vesting of the 2016 Multi-Year PSUs.
"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 the impact related to the vesting of the 2016 Multi-Year PSUs.
Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful
measures of the operating performance of the Company because they adjust for
significant one-time, unusual or non-recurring items as well as eliminate the
accounting effects of certain capital spending and acquisitions that do not
directly affect what management considers to be the Company's core 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
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regarding capital structure, the tax jurisdictions in which companies operate
and capital investments. Accordingly, the Company's computation of the Adjusted
EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly
titled measures computed by other companies.
The following table presents the calculation of Adjusted EBITDA for the periods
indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Operating revenues
13,879 8.0 %
Adjusted EBITDA $ 229,227 $ 197,707 $ 31,520 15.9 %
Adjusted EBITDA margin % 55.0 % 53.2 %
Operating margin % 49.9 % 43.8 %
Adjusted EBITDA increased 15.9% to $229.2 million for the three months ended
March 31, 2020 compared to $197.7 million for the three months ended March 31,
2019 . Adjusted EBITDA margin increased to 55.0% for the three months ended
March 31, 2020 compared to 53.2% for the three months ended March 31, 2019 .
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
March 31,
2020 2019
(in thousands)
Index Adjusted EBITDA $ 183,587 $ 152,211
Analytics Adjusted EBITDA 36,317 36,398
All Other Adjusted EBITDA 9,323 9,098
Consolidated Adjusted EBITDA 229,227 197,707
2016 Multi-Year PSUs grant payroll tax expense - 15,389
Amortization of intangible assets 13,776 11,793
Depreciation and amortization of property,
equipment and leasehold improvements 7,567 7,850 Operating income 207,884 162,675 Other expense (income), net 45,035 34,383 Provision for income taxes 14,724 (49,900 ) Net income$ 148,125 $ 178,192
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
Three Months Ended
March 31,
2020 2019
(in thousands)
Index Adjusted EBITDA expenses $ 65,669 $ 62,562
Analytics Adjusted EBITDA expenses 89,191 85,037
All Other Adjusted EBITDA expenses 32,693 26,075
Consolidated Adjusted EBITDA expenses 187,553 173,674
2016 Multi-Year PSUs grant payroll tax expense - 15,389
Amortization of intangible assets 13,776 11,793
Depreciation and amortization of property,
equipment and leasehold improvements 7,567 7,850 Total operating expenses$ 208,896 $ 208,706 30
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The discussion of the segment results for the three months ended
Segment Results
Index Segment
The following table presents the results for the Index segment for the periods
indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Operating revenues:
Recurring subscriptions $ 139,840 $ 127,674 $ 12,166 9.5 %
Asset-based fees 100,196 81,808 18,388 22.5 %
Non-recurring 9,220 5,291 3,929 74.3 %
Operating revenues total 249,256 214,773 34,483 16.1 %
Adjusted EBITDA expenses 65,669 62,562 3,107 5.0 %
Adjusted EBITDA $ 183,587 $ 152,211 $ 31,376 20.6 %
Adjusted EBITDA margin % 73.7 % 70.9 %
Revenues related to Index products increased 16.1% to
Recurring subscriptions were up 9.5% to$139.8 million for the three months endedMarch 31, 2020 compared to$127.7 million for the three months endedMarch 31, 2019 . The increase was primarily driven by growth in custom and specialized index products, core products and factor and ESG index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible. Revenues from asset-based fees increased 22.5% to$100.2 million for the three months endedMarch 31, 2020 compared to$81.8 million for the three months endedMarch 31, 2019 . The increase in asset-based fees was driven by strong growth across all types of index-linked investment products, including an increase in revenues from exchange traded futures and options contracts linked toMSCI indexes, primarily driven by an increase in total trading volumes. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF passive products linked toMSCI indexes, primarily driven by an increase in average AUM. In addition, the increase in revenues from asset-based fees was driven by revenue growth from ETFs linked toMSCI indexes, driven by a 14.5% increase in average AUM for equity ETFs linked toMSCI indexes, partially offset by the impact of a change in product mix. Average AUM for equity ETFs linked toMSCI indexes for the three months endedMarch 31, 2020 was higher than AUM for equity ETFs linked toMSCI indexes as of the period endedMarch 31, 2020 as a result of depressed AUM levels in the second half of the quarter, primarily due to the negative impact of the COVID-19 pandemic on global equity markets. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. Non-recurring revenues were up 74.3% to$9.2 million for the three months endedMarch 31, 2020 compared to$5.3 million for the three months endedMarch 31, 2019 , driven by derivatives and structured products. Index segment Adjusted EBITDA expenses increased 5.0% to$65.7 million for the three months endedMarch 31, 2020 compared to$62.6 million for the three months endedMarch 31, 2019 , reflecting higher expenses across the G&A and R&D expense activity categories, partially offset by lower expenses across the selling and marketing expense activity category. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 6.0% for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . 31
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Analytics Segment
The following table presents the results for the Analytics segment for the
periods indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Operating revenues:
Recurring subscriptions $ 124,065 $ 120,110 $ 3,955 3.3 %
Non-recurring 1,443 1,325 118 8.9 %
Operating revenues total 125,508 121,435 4,073 3.4 %
Adjusted EBITDA expenses 89,191 85,037 4,154 4.9 %
Adjusted EBITDA $ 36,317 $ 36,398 $ (81 ) (0.2 %)
Adjusted EBITDA margin % 28.9 % 30.0 %
Analytics segment revenues increased 3.4% to $125.5 million for the three months
ended March 31, 2020 compared to $121.4 million for the three months ended
March 31, 2019 . The increase was primarily driven by growth in Multi-Asset Class
Analytics products. The impact of foreign currency exchange rate fluctuations on
Analytics segment revenues was negligible.
Analytics segment Adjusted EBITDA expenses increased 4.9% to $89.2 million for
the three months ended March 31, 2020 compared to $85.0 million for the three
months ended March 31, 2019 , primarily driven by higher expenses across the
selling and marketing and G&A expense activity categories, partially offset by
lower expenses across the cost of revenues expense activity category. Adjusting
for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA
expenses would have increased 6.1% for the three months ended March 31, 2020
compared to the three months ended March 31, 2019 .
All Other Segment
The following table presents the results for the All Other segment for the
periods indicated:
Three Months Ended
March 31,
2020 2019 Increase/(Decrease)
(in thousands)
Operating revenues:
Recurring subscriptions $ 40,520 $ 34,580 $ 5,940 17.2 %
Non-recurring 1,496 593 903 152.3 %
Operating revenues total 42,016 35,173 6,843 19.5 %
Adjusted EBITDA expenses 32,693 26,075 6,618 25.4 %
Adjusted EBITDA $ 9,323 $ 9,098 $ 225 2.5 %
Adjusted EBITDA margin % 22.2 % 25.9 %
All Other segment revenues increased 19.5% to $42.0 million for the three months
ended March 31, 2020 compared to $35.2 million for the three months ended
March 31, 2019 . The increase in All Other revenues was driven by a $3.7 million ,
or 17.1%, increase in ESG revenues to $25.2 million and a $3.1 million , or
23.2%, increase in Real Estate revenues to $16.8 million . The increase in ESG
revenues was driven primarily by growth in the Ratings and Climate products. The
increase in Real Estate revenues was primarily driven by strong growth in
Enterprise Analytics products and a one-time data license fee recognized during
the three months ended March 31, 2020 . Adjusting for the impact of foreign
currency exchange rate fluctuations, All Other operating revenues would have
increased 21.3%, ESG revenues would have increased 18.2% and Real Estate
revenues would have increased 26.2% for the three months ended March 31, 2020
compared to the three months ended March 31, 2019 .
All Other segment Adjusted EBITDA expenses increased 25.4% to $32.7 million for
the three months ended March 31, 2020 compared to $26.1 million for the three
months ended March 31, 2019 , driven by higher expenses primarily from ESG
operations, including expenses associated with Carbon Delta operations.
Adjusting for the impact of foreign currency exchange rate fluctuations,
Adjusted EBITDA expenses would have increased 26.7% for the three months ended
March 31, 2020 compared to the three months ended March 31, 2019 .
The All Other segment includes MSCI 's equity method investment in Burgiss, the
earnings of which are not included in Adjusted EBITDA, MSCI 's measure of segment
profit. Income from the equity method investments will be recognized in "Other
expense (income), net" in the Consolidated Statement of Income.
32
--------------------------------------------------------------------------------Run Rate "Run Rate" estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements ("Client Contracts") for the next 12 months, assuming all Client Contracts that come up for renewal are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product's assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets.Run Rate does not include fees associated with "one-time" and other non-recurring transactions. In addition, we add 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 or non-renewal during the period and have determined that such notice evidences the client's final decision to terminate or not renew the applicable products or services, even though such notice is not effective until a later date. Changes in our recurring revenues typically lag changes 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;
• 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;
• revenue recognition differences under
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.
33
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The following table presents the Run Rates as of the dates indicated and the growth percentages over the periods indicated:
As of Year-Over-
March 31, March 31, Year
2020 2019 Comparison
(in thousands)
Index:
Recurring subscriptions $ 574,132 $ 515,667 11.3 %
Asset-based fees 348,218 335,261 3.9 %
Index total 922,350 850,928 8.4 %
Analytics 528,378 496,183 6.5 %
All Other 153,452 130,979 17.2 %
Total Run Rate $ 1,604,180 $ 1,478,090 8.5 %
Recurring subscriptions total $ 1,255,962 $ 1,142,829 9.9 %
Asset-based fees 348,218 335,261 3.9 %
Total Run Rate $ 1,604,180 $ 1,478,090 8.5 %
Total Run Rate grew 8.5% to $1,604.2 million at March 31, 2020 compared to
$1,478.1 million at March 31, 2019 . Recurring subscriptions Run Rate grew 9.9%
to $1,256.0 million at March 31, 2020 compared to $1,142.8 million at March 31,
2019 . Adjusting for the impact of foreign currency exchange rate fluctuations,
recurring subscriptions Run Rate would have increased 10.2% at March 31, 2020
compared to the three months ended March 31, 2019 .
Run Rate from asset-based fees increased 3.9% to $348.2 million at March 31,
2020 from $335.3 million at March 31, 2019 , primarily driven by higher volume in
futures and options as well as higher non-ETF passive funds also linked to MSCI
indexes, partially offset by lower AUM in ETFs linked to MSCI indexes. As of
March 31, 2020 , the value of AUM in equity ETFs linked to MSCI indexes was
$709.5 billion , down $92.7 billion , or 11.6%, from $802.2 billion as of
March 31, 2019 . The decrease of $92.7 billion consisted of market depreciation
of $147.3 billion and net inflows of $54.6 billion . In addition to the decrease
in AUM in equity ETFs linked to MSCI indexes, change in product mix as well as
fee levels of certain products drove a decline in average basis point fees to
2.71 at March 31, 2020 from 2.88 at March 31, 2019 .
Index recurring subscriptions Run Rate grew 11.3% to $574.1 million at March 31,
2020 compared to $515.7 million at March 31, 2019 , driven by strong growth in
core products, factor and ESG index products and custom and specialized index
products, with strong growth across all our client segments.
Run Rate from Analytics products increased 6.5% to $528.4 million at March 31,
2020 compared to $496.2 million at March 31, 2019 , primarily driven by strong
growth in Multi-Asset Class and Equity Analytics products. Adjusting for the
impact of foreign currency exchange rate fluctuations, Analytics Run Rate would
have increased 6.6% at March 31, 2020 .
Run Rate from All Other products increased 17.2% to $153.5 million at March 31,
2020 compared to $131.0 million at March 31, 2019 . The $22.5 million increase
was primarily driven by a $19.8 million , or 23.5%, increase in ESG Run Rate to
$103.8 million , and a $2.7 million , or 5.8%, increase in Real Estate Run Rate to
$49.7 million . The increase in ESG Run Rate was primarily driven by growth in
Ratings products, Climate products and Screening products. The increase in Real
Estate Run Rate was primarily driven by growth in Global Intel products.
Adjusting for the impact of foreign currency exchange rate fluctuations, All
Other Run Rate would have increased 19.2% and ESG Run Rate would have increased
24.6%, while Real Estate Run Rate would have increased 9.4% at March 31, 2020
compared to March 31, 2019 .
34
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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 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 Year-Over-
March 31, March 31, Year
2020 2019 Comparison
(in thousands)
New recurring subscription sales
Index $ 19,054 $ 17,329 10.0 %
Analytics 11,218 12,751 (12.0 %)
All Other 8,169 7,215 13.2 %
New recurring subscription sales total 38,441 37,295 3.1 %
Subscription cancellations
Index (5,116 ) (4,366 ) 17.2 %
Analytics (8,244 ) (7,764 ) 6.2 %
All Other (2,053 ) (1,275 ) 61.0 %
Subscription cancellations total (15,413 ) (13,405 ) 15.0 %
Net new recurring subscription sales Index 13,938 12,963 7.5 % Analytics 2,974 4,987 (40.4 %) All Other 6,116 5,940 3.0 % Net new recurring subscription sales total 23,028 23,890 (3.6 %) Non-recurring sales Index 10,283 5,081 102.4 % Analytics 3,265 2,577 26.7 % All Other 1,031 454 127.1 % Non-recurring sales total 14,579 8,112 79.7 % Gross sales Index$ 29,337 $ 22,410 30.9 % Analytics 14,483 15,328 (5.5 %) All Other 9,200 7,669 20.0 % Total gross sales$ 53,020 $ 45,407 16.8 % Net sales Index$ 24,221 $ 18,044 34.2 % Analytics 6,239 7,564 (17.5 %) All Other 7,147 6,394 11.8 % Total net sales$ 37,607 $ 32,002 17.5 % 35
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A significant portion ofMSCI 's operating revenues are derived from subscriptions or licenses of products and services, which are provided over contractually-agreed periods of time that are subject to renewal or cancellation at the end of current contract terms. As ofMarch 31, 2020 , cancellations have not deviated significantly from historical levels as a result of the COVID-19 pandemic. However, new sales may moderate and cancellations may increase in the near term. Retention Rate
The following table presents our Retention Rate by reportable segment for the periods indicated:
Three Months Ended
March 31,
2020 2019
Index 96.3% 96.5%
Analytics 93.7% 93.7%
All Other 94.6% 95.9%
Total 95.0% 95.2%
Retention Rate is an important metric because subscription cancellations
decrease our Run Rate and ultimately our operating revenues over time. The
annual Retention Rate represents the retained subscription Run Rate
(subscription Run Rate at the beginning of the fiscal year less actual cancels
during the year) as a percentage of the subscription Run Rate at the beginning
of the fiscal year.
The Retention Rate for a non-annual period is calculated by annualizing the
cancellations for which we have received a notice of termination or for which we
believe there is an intention not to renew during the non-annual period, and we
believe that such notice or intention evidences the client's final decision to
terminate or not renew the applicable agreement, even though such notice is not
effective until a later date. This annualized cancellation figure is then
divided by the subscription Run Rate at the beginning of the fiscal year to
calculate a cancellation rate. This cancellation rate is then subtracted from
100% to derive the annualized Retention Rate for the period.
Retention Rate is computed by operating segment on a
product/service-by-product/service basis. In general, if a client reduces the
number of products or services to which it subscribes within a segment, or
switches between products or services within a segment, we treat it as a
cancellation for purposes of calculating our Retention Rate except in the case
of a product or service switch that management considers to be a replacement
product or service. In those replacement cases, only the net change to the
client subscription, if a decrease, is reported as a cancel. In the Analytics
and the ESG segments, substantially all product or service switches are treated
as replacement products or services and netted in this manner, while in our
Index and Real Estate 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-sale of the same product or service as a cancellation to the extent
of the reduction. We do not calculate Retention Rate for that portion of our Run
Rate attributable to assets in index-linked investment products or futures and
options contracts, in each case, linked to our indexes.
In our product lines, 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 and also in Note 2, "Recent Accounting Standards Updates," in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year endedDecember 31, 2019 other than those described in Note 2, "Recent Accounting Standards Updates" in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.
Liquidity and Capital Resources
We require capital to fund ongoing operations, internal growth initiatives and
acquisitions. Our primary sources of liquidity are cash flows generated from our
operations, existing cash and cash equivalents and credit capacity under our
existing credit facility. In addition, we believe we have access to additional
funding in the public and private markets. We intend to use these sources of
liquidity to, among other things, service our existing and future debt
obligations, fund our working capital requirements for capital expenditures,
investments, acquisitions and dividend payments, and repurchases of our common
stock. In connection with our business strategy, we regularly evaluate
acquisition and strategic partnership opportunities. We believe our liquidity,
along with other financing alternatives, will provide the necessary capital to
fund these transactions and achieve our planned growth.
36
--------------------------------------------------------------------------------Senior Notes and Credit Agreement
We have an aggregate of$3,200.0 million in Senior Notes outstanding and a$400.0 million Revolving Credit Agreement with a syndicate of banks. See Note 7, "Commitments and Contingencies," of the Notes to Unaudited Condensed Consolidated Financial Statements included herein for additional information on our Senior Notes and Revolving Credit Agreement. The Senior Notes and the Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly owned domestic subsidiaries that account for more than 5% of our and our subsidiaries' consolidated assets, other than certain excluded subsidiaries (the "subsidiary guarantors"). Amounts due under the Revolving Credit Agreement are our and the subsidiary guarantors' senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt. The indentures governing our Senior Notes (the "Indentures") among us, each of the subsidiary guarantors, andWells Fargo Bank, National Association , as trustee, contain covenants that limit our and certain of our subsidiaries' ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis. The Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and the ability of our existing or future subsidiaries to:
• incur liens 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 Revolving Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business. The Revolving Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As ofMarch 31, 2020 , our Consolidated Leverage Ratio was 3.29:1.00 and our Consolidated Interest Coverage Ratio was 6.43:1.00. As ofMarch 31, 2020 ,$5.0 million was drawn and outstanding under the Revolving Credit Agreement, which bears interest of LIBOR plus 1.50%, or a rate of 2.25%. The$5.0 million plus accrued interest was paid onApril 20, 2020 . 37 --------------------------------------------------------------------------------
Our non-guarantor subsidiaries under the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately$913.3 million , or 57.0%, of our total revenue for the trailing 12 months endedMarch 31, 2020 , approximately$298.2 million , or 37.2%, of our consolidated operating income for the trailing 12 months endedMarch 31, 2020 , and approximately$874.5 million , or 22.3%, of our consolidated total assets (excluding intercompany assets) and$583.6 million , or 13.7%, of our consolidated total liabilities, in each case as ofMarch 31, 2020 . 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
Paid Per Shares Shares
Three Months Ended Share Repurchased Repurchased
(in thousands)
March 31, 2020 $ 248.65 1,310 $ 325,698
March 31, 2019 $ 147.97 690 $ 102,081 As of
Cash Dividend
OnApril 27, 2020 , the Board of Directors declared a quarterly cash dividend of$0.68 per share for the three months endingMarch 31, 2020 . This dividend is payable onMay 29, 2020 to shareholders of record as of the close of trading onMay 15, 2020 . Cash Flows As ofMarch 31 ,December 31, 2020 2019 (in thousands)
Cash and cash equivalents
Cash and cash equivalents were$1,066.9 million and$1,506.6 million as ofMarch 31, 2020 andDecember 31, 2019 , respectively. We typically seek to maintain minimum cash balances globally of approximately$200.0 million to$250.0 million for general operating purposes but may maintain higher minimum cash balances while the COVID-19 pandemic continues to impact global economic markets. As ofMarch 31, 2020 andDecember 31, 2019 ,$290.0 million and$321.2 million , respectively, of the cash and cash equivalents were held by foreign subsidiaries. As a result of Tax Reform, we can now more efficiently access a significant portion of our cash held outside of theU.S. in the short-term without being subject toU.S. income taxes. Repatriation of some foreign cash may still be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. The global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes or other needs, including acquisitions or expansion of our products. We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter. 38 --------------------------------------------------------------------------------
Net Cash Provided by (Used In) Operating, Investing and Financing Activities
Three Months Ended
March 31,
2020 2019
(in thousands)
Net cash provided by operating activities
(10,762 ) 501
Net decrease in cash $ (439,711 ) $ (261,395 ) Cash Flows From Operating Activities
Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was$112.8 million and$87.9 million for the three months endedMarch 31, 2020 and 2019, respectively. The year-over-year increase was primarily driven by higher cash collections from customers and the benefit of lower payments for income taxes, partially offset by higher payments for cash expenses and interest. Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent, technology costs, market data costs, interest expenses and income taxes. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year. Cash flows from operating activities for the year endingDecember 31, 2020 are expected to decrease from those for the year endedDecember 31, 2019 , in part, from the impact of the COVID-19 pandemic.
Cash Flows From Investing Activities
Cash used in investing activities was$201.6 million for the three months endedMarch 31, 2020 compared to$8.1 million for the three months endedMarch 31, 2019 . The year-over-year change was primarily driven by the$190.8 million investment in Burgiss. We expect to continue to invest in the business despite the COVID-19 pandemic, with cash flows for capital expenditures for the year endingDecember 31, 2020 expected to increase from the year endedDecember 31, 2019 .
Cash Flows From Financing Activities
Cash used in financing activities was$340.1 million for the three months endedMarch 31, 2020 compared to$341.6 million for the three months endedMarch 31, 2019 . The year-over-year change primarily reflects proceeds from the$400.0 million 2030 Senior Notes offering inFebruary 2020 , partially offset by the payment to redeem the remaining$300.0 million aggregate principal amount of the 2024 Senior Notes and higher share repurchases.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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