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, 2020 (the "Form 10-K"). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in "Item 1A.-Risk Factors," in our Form 10-K.
Except as the context otherwise indicates, the terms "
Overview
We are a leading provider of critical decision support tools and services for the global investment community. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, our actionable solutions power better investment decisions by enabling our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. Investors all over the world use our tools and services to gain insight and improve transparency throughout their investment processes, including to help define their investment universe, inform and analyze their asset allocation and portfolio construction decisions, measure and manage portfolio performance and risk, conduct performance attribution, implement sustainable and other investment strategies, design and issue ETFs and other indexed financial products, and facilitate reporting to stakeholders. Our leading research-enhanced products and services include indexes; portfolio construction and risk management analytics; ESG and climate solutions; and real estate benchmarks, return-analytics and market insights. Through our integrated franchise we provide solutions across our products and services to support our clients' dynamic and complex needs. Our content and capabilities can be accessed by our clients through multiple channels and platforms. We are focused on product innovation to address the evolving needs of our clients in light of changing investment trends and an increasingly complex industry. In order to most effectively serve our clients, we are committed to driving an integrated solutions-based approach, achieving service excellence, enhancing our differentiated research and content, and delivering flexible, cutting-edge technology and platforms.
Our clients comprise a wide spectrum of the global investment industry and include the following key client types:
• Asset owners (pension funds, endowments, foundations, central banks,
sovereign wealth funds, family offices and insurance companies)
• Asset managers (institutional funds and accounts, mutual funds, hedge
funds, ETFs, insurance products, private banks and real estate investment
trusts)
• Financial intermediaries (banks, broker-dealers, exchanges, custodians,
trust companies and investment consultants)
• Wealth managers (including robo-advisors and self-directed brokerages)
• Corporates
As of
Our principal business model is generally to license annual, recurring
subscriptions for the majority of our Index, Analytics and ESG and Climate
products and services for a fee due in advance of the service period. We also
license annual recurring subscriptions for the majority of our Real Estate
products for a fee which is primarily paid in arrears after the product is
delivered, with the exception of the Market Information product for which the
fees are generally paid in advance. A portion of our fees comes from clients who
use our indexes as the basis for index-linked investment products. Such fees are
primarily based on a client's assets under management ("AUM"), trading volumes
and fee levels.
1 Represents the aggregate of all related clients under their respective parent
entity.
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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) extending leadership in research-enhanced content across asset classes, (b) enhancing distribution and content-enabling technology, (c) expanding solutions that empower client customization, (d) strengthening existing and developing new client relationships and (e) executing strategic relationships and acquisitions with complementary content and technology companies. In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period. While operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations, the underlying AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. More than three-fifths of the AUM is invested in securities denominated in currencies other than 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 and six months ended
Results of Operations
The following table presents the results of operations for the periods
indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020 % Change
(in thousands, except per share data)
Operating revenues $ 498,180 $ 409,616 21.6 % $ 976,603 $ 826,396 18.2 %
Operating expenses:
Cost of revenues 87,327 70,456 23.9 % 173,107 145,065 19.3 %
Selling and marketing 58,191 51,617 12.7 % 114,658 107,166 7.0 %
Research and development 27,531 22,534 22.2 % 52,393 49,096 6.7 %
General and administrative 30,182 28,309 6.6 % 64,910 59,142 9.8 %
Amortization of intangible assets 30,396 14,062 116.2 %
45,464 27,838 63.3 %
Depreciation and amortization of
property,
equipment and leasehold
improvements 7,020 7,463 (5.9 %) 14,163 15,030 (5.8 %)
Total operating expenses 240,647 194,441 23.8 % 464,695 403,337 15.2 %
Operating income 257,533 215,175 19.7 % 511,908 423,059 21.0 %
Other expense (income), net 61,838 76,008 (18.6 %) 100,185 121,043 (17.2 %)
Income before provision for income
taxes 195,695 139,167 40.6 % 411,723 302,016 36.3 %
Provision for income taxes 30,272 24,044 25.9 % 49,481 38,768 27.6 %
Net income $ 165,423 $ 115,123 43.7 % $ 362,242 $ 263,248 37.6 %
Earnings per basic common share
$ 4.39 $ 3.12 40.7 %
Earnings per diluted common share
$ 4.34 $ 3.10 40.0 % Operating margin 51.7 % 52.5 % 52.4 % 51.2 % Operating Revenues Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics, ESG and Climate and All Other - Private Assets, which includes the Real Estate product line. 22 -------------------------------------------------------------------------------- The following table presents operating revenues by type for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 % Change 2021 2020 % Change (in thousands) Recurring subscriptions$ 348,130 $ 309,884 12.3 %$ 685,862 $ 614,309 11.6 % Asset-based fees 136,142 88,075 54.6 % 262,848 188,271 39.6 % Non-recurring 13,908 11,657 19.3 % 27,893 23,816 17.1 % Total operating revenues$ 498,180 $ 409,616 21.6 %$ 976,603 $ 826,396 18.2 % Total operating revenues for the three months endedJune 30, 2021 increased 21.6% to$498.2 million compared to$409.6 million for the three months endedJune 30, 2020 . Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 20.6% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 .
For the six months ended
Operating revenues from recurring subscriptions for the three months endedJune 30, 2021 increased 12.3% to$348.1 million compared to$309.9 million for the three months endedJune 30, 2020 , primarily driven by growth in Index products, which increased$14.7 million , or 10.1%, strong growth in ESG and Climate products, which increased$12.7 million , or 48.9%, and growth in Analytics products, which increased$7.2 million , or 5.7%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 11.0% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , the increase was 11.6%, growing to$685.9 million compared to$614.3 million for the six months endedJune 30, 2020 , primarily driven by growth in Index products, which increased$29.9 million , or 10.5%, strong growth in ESG and Climate products, which increased$21.9 million , or 43.1%, and growth in Analytics products, which increased$14.8 million , or 5.9%. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 10.5% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Operating revenues from asset-based fees for the three months endedJune 30, 2021 increased 54.6% to$136.1 million compared to$88.1 million for the three months endedJune 30, 2020 . The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked toMSCI equity indexes that was primarily driven by a 66.4% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked toMSCI indexes, primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked toMSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. For the six months endedJune 30, 2021 , revenues from asset-based fees increased 39.6% to$262.8 million compared to$188.3 million for the six months endedJune 30, 2020 . The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked toMSCI equity indexes that was primarily driven by a 48.8% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked toMSCI indexes primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked toMSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. The following table presents the value of AUM in ETFs linked toMSCI equity indexes and the sequential change of such assets as of the end of each of the periods indicated: Period Ended 2020 2021 March June September December March June (in billions) 31, 30, 30, 31, 31, 30, AUM in ETFs linked toMSCI equity indexes(1), (2)$ 709.5 $ 825.4 $ 908.9
Sequential Change in Value Market Appreciation/(Depreciation)$ (216.5 ) $ 117.4 $ 57.0 $ 135.7 $ 43.2 $ 73.7 Cash Inflows (8.4 ) (1.5 ) 26.5 59.0 62.8 52.9 Total Change$ (224.9 ) $ 115.9 $ 83.5 $ 194.7 $ 106.0 $ 126.6 23
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The following table presents the average value of AUM in ETFs linked to
2020 2021
(in billions) March June September December March June
AUM in ETFs linked to MSCI
equity indexes(1), (2)
Quarterly average $ 877.1 $ 776.9 $ 893.4 $ 999.2 $ 1,169.2 $ 1,292.4
Year-to-date average $ 877.1 $ 827.0 $ 849.1 $ 886.7 $ 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 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 SEC . The AUM in ETFs also includes AUM in
Exchange Traded Notes, the value of which is less than 1.0% of the AUM
amounts presented.
(2) The value of AUM in ETFs linked to
multiplying the equity ETF net asset value by the number of shares
outstanding.
The average value of AUM in ETFs linked to MSCI equity indexes for the three
months ended June 30, 2021 was $1,292.4 billion , up $515.5 billion , or 66.4%,
from $776.9 billion for the three months ended June 30, 2020 . For the six months
ended June 30, 2021 , it was $1,230.8 billion , up $403.8 billion , or 48.8%, from
$827.0 billion for the six months ended June 30, 2020 .
The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
(in thousands)
Operating revenues:
Index
Recurring subscriptions $ 160,061 $ 145,404 10.1 % $ 315,178 $ 285,244 10.5 %
Asset-based fees 136,142 88,075 54.6 % 262,848 188,271 39.6 %
Non-recurring 9,760 9,429 3.5 % 20,428 18,649 9.5 %
Index total 305,963 242,908 26.0 % 598,454 492,164 21.6 %
Analytics
Recurring subscriptions 133,368 126,189 5.7 % 265,040 250,254 5.9 %
Non-recurring 2,534 1,374 84.4 % 4,879 2,817 73.2 %
Analytics total 135,902 127,563 6.5 % 269,919 253,071 6.7 %
ESG and Climate
Recurring subscriptions 38,567 25,908 48.9 % 72,707 50,809 43.1 %
Non-recurring 741 394 88.1 % 1,351 726 86.1 %
ESG and Climate total 39,308 26,302 49.4 % 74,058 51,535 43.7 %
All Other - Private Assets
Recurring subscriptions 16,134 12,383 30.3 % 32,937 28,002 17.6 %
Non-recurring 873 460 89.8 % 1,235 1,624 (24.0 %)
All Other - Private Assets total 17,007 12,843 32.4 % 34,172 29,626 15.3 %
Total operating revenues $ 498,180 $ 409,616 21.6 % $ 976,603 $ 826,396 18.2 %
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");
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• Amortization of intangible assets; and
• Depreciation and amortization of property, equipment and leasehold
improvements.
Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.
The following table presents operating expenses by activity category for the
periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
(in thousands)
Operating expenses:
Cost of revenues $ 87,327 $ 70,456 23.9 % $ 173,107 $ 145,065 19.3 %
Selling and marketing 58,191 51,617 12.7 % 114,658 107,166 7.0 %
Research and development 27,531 22,534 22.2 % 52,393 49,096 6.7 %
General and administrative 30,182 28,309 6.6 % 64,910 59,142 9.8 %Amortization of intangible assets 30,396 14,062 116.2 % 45,464 27,838
63.3 %
Depreciation and amortization of
property,
equipment and leasehold
improvements 7,020 7,463 (5.9 %) 14,163 15,030 (5.8 %)
Total operating expenses $ 240,647 $ 194,441 23.8 % $ 464,695 $ 403,337 15.2 %
Total operating expenses for the three months ended
For the six months ended
Cost of Revenues
Cost of revenues expenses consist of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, cloud service, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support and maintain existing products; costs of product management teams; costs of client service and consultant teams to support customer needs; as well as other support costs directly attributable to the cost of revenues including certain human resources, finance and legal costs. Cost of revenues for the three months endedJune 30, 2021 increased 23.9% to$87.3 million compared to$70.5 million for the three months endedJune 30, 2020 , reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries, incentive compensation and benefits costs, as well as higher non-compensation costs, reflecting higher professional fees, information technology costs and market data costs. For the six months endedJune 30, 2021 , the increase was 19.3%, growing to$173.1 million compared to$145.1 million for the six months endedJune 30, 2020 , reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and incentive compensation, as well as higher non-compensation costs, reflecting higher professional fees, information technology costs and market data costs.
Selling and Marketing
Selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations. Selling and marketing expenses for the three months endedJune 30, 2021 increased 12.7% to$58.2 million compared to$51.6 million for the three months endedJune 30, 2020 , primarily driven by higher costs in the Index, ESG and Climate and Analytics reportable segments. The change was driven by increases in compensation and benefits costs, including higher incentive compensation and wages and salaries, as well as higher non-compensation costs, primarily relating to higher information technology costs and recruiting costs. 25 -------------------------------------------------------------------------------- For the six months endedJune 30, 2021 , the increase was 7.0%, growing to$114.7 million compared to$107.2 million for the six months endedJune 30, 2020 , primarily driven by higher costs in the ESG and Climate and Index reportable segments. The change was driven by increases in compensation and benefits costs, including incentive compensation, wages and salaries and benefits costs, partially offset by decreases in non-compensation costs, primarily relating to lower travel and entertainment costs and marketing costs.
Research and Development
R&D expenses consist of the costs to develop new or enhance existing products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support associated with these efforts. R&D expenses for the three months endedJune 30, 2021 increased 22.2% to$27.5 million compared to$22.5 million for the three months endedJune 30, 2020 , reflecting higher investment in the ESG and Climate and Index reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation, benefits costs and wages and salaries. For the six months endedJune 30, 2021 , the increase was 6.7%, growing to$52.4 million compared to$49.1 million for the six months endedJune 30, 2020 , reflecting higher investment in the ESG and Climate and Index reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation and benefits costs, partially offset by lower wages and salaries.
General and Administrative
G&A expenses consist of costs primarily related to finance operations, human resources, office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service. G&A expenses for the three months endedJune 30, 2021 increased 6.6% to$30.2 million compared to$28.3 million for the three months endedJune 30, 2020 , reflecting increases across all four reportable segments. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs, recruiting costs, other tax expenses, insurance costs and personnel related costs. For the six months endedJune 30, 2021 , the increase was 9.8%, growing to$64.9 million compared to$59.1 million for the six months endedJune 30, 2020 , reflecting increases across all four reportable segments. The change was driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and incentive compensation, as well as higher non-compensation costs, including information technology costs and insurance costs. The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 % Change 2021 2020 % Change (in thousands) Compensation and benefits$ 148,180 $ 128,803 15.0 %$ 299,697 $ 266,065 12.6 % Non-compensation expenses 55,051 44,113 24.8 % 105,371 94,404 11.6 %
Amortization of intangible assets 30,396 14,062 116.2 % 45,464 27,838
63.3 %
Depreciation and amortization of
property,
equipment and leasehold
improvements 7,020 7,463 (5.9 %) 14,163 15,030 (5.8 %)
Total operating expenses $ 240,647 $ 194,441 23.8 % $ 464,695 $ 403,337 15.2 %
Compensation and Benefits
Compensation and benefits costs are our most significant expense and typically
represent approximately 65% of operating expenses or more than 70% of Adjusted
EBITDA expenses. We had 3,910 and 3,513 employees as of June 30, 2021 and 2020,
respectively, reflecting a 11.3% growth in the number of employees. Continued
growth of our emerging market centers around the world is an important factor in
our ability to manage and control the growth of our compensation and benefit
expenses. As of June 30, 2021 , 65.9% of our employees were located in emerging
market centers compared to 63.7% as of June 30, 2020 .
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Compensation and benefits costs for the three months ended
For the six months ended
A significant portion of the incentive compensation component of operating expenses is based on the achievement of a number of financial and operating metrics. In a scenario where operating revenue growth and profitability moderate, incentive compensation would be expected to decrease accordingly.
Non-Compensation Expenses
Non-compensation expenses for the three months ended
For the six months endedJune 30, 2021 , the increase was 11.6%, growing to$105.4 million compared to$94.4 million for the six months endedJune 30, 2020 , primarily driven by higher information technology costs, professional fees and market data costs, partially offset by lower travel and entertainment costs. Fixed costs constitute a significant portion of the non-compensation component of operating expenses. The discretionary non-compensation component of operating expenses could, however, be reduced in the near-term in a scenario where operating revenue growth moderates.
Amortization of Intangible Assets
Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects recognized over their estimated useful lives. Amortization of intangible assets expense for the three months endedJune 30, 2021 increased 116.2% to$30.4 million compared to$14.1 million for the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , amortization of intangible assets expense increased 63.3% to$45.5 million compared to$27.8 million for the six months endedJune 30, 2020 . The increase in both the three and six months endedJune 30, 2021 , was primarily driven by a write-off of$16.0 million of certain internally developed capitalized software intangible assets as a result of management's decision during the three months endedJune 30, 2021 to discontinue development and cease related sales activities of certain Analytics segment products and transition existing customers to other product offerings.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements consists of expenses related to depreciating or amortizing the cost of furniture and fixtures, computer and related equipment and leasehold improvements over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements for the three months endedJune 30, 2021 decreased 5.9% to$7.0 million compared to$7.5 million for the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , depreciation and amortization of property, equipment and leasehold improvements decreased 5.8% to$14.2 million compared to$15.0 million for the six months endedJune 30, 2020 . The decrease in both the three and six months endedJune 30, 2021 , was primarily the result of lower depreciation on software, computer and related equipment and leasehold improvements. Other Expense (Income), Net Other expense (income), net for the three months endedJune 30, 2021 decreased 18.6% to$61.8 million compared to$76.0 million for the three months endedJune 30, 2020 . The decrease in net expenses was primarily driven by the absence of the$35.0 million loss on debt extinguishment associated with the redemption of all of the$800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025 that remained outstanding (the "2025 Senior Notes Redemption") during the three months endedJune 30, 2020 . This was partially offset by the$21.8 million loss on debt extinguishment associated with the redemption of all of the$500.0 million aggregate principal amount of the 2026 Senior Notes that remained outstanding (the "2026 Senior Notes Redemption") during the three months endedJune 30, 2021 . The loss on debt extinguishment associated with the 2026 Senior Notes Redemption included an applicable premium of approximately$18.2 million (as set forth in the indenture governing the terms of the 2026 Senior Notes) and the write-off of approximately$3.6 million of unamortized debt issuance costs associated with the 2026 Senior Notes. For the six months endedJune 30, 2021 , it decreased 17.2% to$100.2 million compared to$121.0 million for the six months endedJune 30, 2020 . The decrease in net expenses was primarily driven by the absence of the$35.0 million and$10.0 million loss on debt extinguishment associated with the 2025 Senior Notes Redemption and the redemption of all of the$300.0 million aggregate principal amount of 5.250% senior unsecured notes due 2024 that remained outstanding (the "2024 Senior Notes Redemption") during 27 -------------------------------------------------------------------------------- the six months endedJune 30, 2020 , respectively. This was partially offset by the$21.8 million loss on debt extinguishment associated with the 2026 Senior Notes Redemption during the six months endedJune 30, 2021 .
Income Taxes
The Company's provision for income taxes for the three months endedJune 30, 2021 and 2020 was$30.3 million and$24.0 million , respectively. These amounts reflect effective tax rates of 15.5% and 17.3% for the three months endedJune 30, 2021 and 2020, respectively. The effective tax rate of 15.5% for the three months endedJune 30, 2021 reflects the Company's estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling$11.9 million . For the three months endedJune 30, 2021 , these discrete items primarily related to the$5.6 million tax impact of loss on debt extinguishment recognized during the period on the 2026 Senior Notes Redemption. Also included in the discrete items is a$2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in theUK corporate tax rate, a$2.1 million benefit related to the filing of prior year refund claims,$1.0 million of excess tax benefits recognized on share-based compensation vested during the period and$0.9 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings. The effective tax rate of 17.3% for the three months endedJune 30, 2020 reflects the Company's estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling$11.7 million . For the three months endedJune 30, 2020 , these discrete items primarily related to the$9.0 million tax impact of loss on debt extinguishment recognized during the period on the 2025 Senior Notes Redemption and$2.3 million of excess tax benefits recognized on share-based compensation vested during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings. The Company's provision for income taxes for the six months endedJune 30, 2021 and 2020 was$49.5 million and$38.8 million , respectively. These amounts reflect effective tax rates of 12.0% and 12.8% for the six months endedJune 30, 2021 and 2020, respectively. The effective tax rate of 12.0% for the six months endedJune 30, 2021 reflects the Company's estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling$34.2 million , in relation to pretax income. For the six months endedJune 30, 2021 , these discrete items primarily related to$21.4 million of excess tax benefits recognized on share-based compensation vested during the period and$5.6 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2026 Senior Notes Redemption. Also included in the discrete items is a$2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in theUK corporate tax rate, a$2.1 million benefit related to the filing of prior year refund claims and$2.8 million of tax benefits related to other prior year items. In addition, the effective tax rate was impacted by the level of earnings. The effective tax rate of 12.8% for the six months endedJune 30, 2020 reflects the Company's estimate of the effective tax rate for the period which was impacted by certain favorable discrete items totaling$34.1 million . For the six months endedJune 30, 2020 , these discrete items primarily related to$21.5 million of excess tax benefits recognized on share-based compensation vested during the period and$11.5 million related to the tax impact of loss on debt extinguishment recognized during the period on the 2024 Senior Notes Redemption and 2025 Senior Notes Redemption. The discrete items also included a$0.8 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings.
Net Income
As a result of the factors described above, net income for the three months endedJune 30, 2021 increased 43.7% to$165.4 million compared to$115.1 million for the three months endedJune 30, 2020 and for the six months endedJune 30, 2021 , it increased 37.6% to$362.2 million compared to$263.2 million for the six months endedJune 30, 2020 .
Weighted Average Shares
The weighted average shares outstanding used to calculate basic and diluted earnings per share for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 decreased by 1.4% and 1.2%, respectively. For the six months endedJune 30, 2021 , the weighted average shares outstanding used to calculate basic and diluted earnings per share compared to the six months endedJune 30, 2020 decreased by 2.0% and 1.8%, respectively. The decrease in both the three and six months endedJune 30, 2021 , primarily reflect the impact of share repurchases made pursuant to the stock repurchase program. Adjusted EBITDA "Adjusted EBITDA," a non-GAAP measure used by management to assess operating performance, is defined as net income before (1) provision for income taxes, (2) other expense (income), net, (3) depreciation and amortization of property, equipment and leasehold improvements, (4) amortization of intangible assets and, at times, (5) certain other transactions or adjustments. 28 -------------------------------------------------------------------------------- "Adjusted EBITDA expenses," a non-GAAP measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments. Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be the Company's ongoing operating performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company's computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies. The following table presents the calculation of Adjusted EBITDA for the periods indicated: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 % Change 2021 2020 % Change (in thousands) Operating revenues$ 498,180 $ 409,616 21.6 %$ 976,603 $ 826,396 18.2 % Adjusted EBITDA expenses 203,231 172,916 17.5 % 405,068 360,469 12.4 % Adjusted EBITDA$ 294,949 $ 236,700 24.6 %$ 571,535 $ 465,927 22.7 % Adjusted EBITDA margin % 59.2 % 57.8 % 58.5 % 56.4 % Operating margin % 51.7 % 52.5 % 52.4 % 51.2 % Adjusted EBITDA for the three months endedJune 30, 2021 increased 24.6% to$294.9 million compared to$236.7 million for the three months endedJune 30, 2020 . Adjusted EBITDA margin for the three months endedJune 30, 2021 increased to 59.2% compared to 57.8% for the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , Adjusted EBITDA increased 22.7% to$571.5 million compared to$465.9 million for the six months endedJune 30, 2020 . For the six months endedJune 30, 2021 , Adjusted EBITDA margin increased to 58.5% compared to 56.4% for the six months endedJune 30, 2020 . The increase in Adjusted EBITDA margin for both the three and six months endedJune 30, 2021 , reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses.
Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses
The following table presents the reconciliation of Adjusted EBITDA to net income
for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in thousands)
Index Adjusted EBITDA $ 233,468 $ 183,256 $ 453,347 $ 366,843
Analytics Adjusted EBITDA 49,814 46,167 95,545 82,484
ESG and Climate Adjusted
EBITDA 5,720 5,499 10,765 9,125
All Other - Private Assets
Adjusted EBITDA 5,947 1,778 11,878 7,475
Consolidated Adjusted EBITDA 294,949 236,700 571,535 465,927
Amortization of intangible
assets 30,396 14,062 45,464 27,838
Depreciation and amortization
of property,
equipment and leasehold
improvements 7,020 7,463 14,163 15,030
Operating income 257,533 215,175 511,908 423,059
Other expense (income), net 61,838 76,008 100,185 121,043
Provision for income taxes 30,272 24,044 49,481 38,768
Net income $ 165,423 $ 115,123 $ 362,242 $ 263,248
29
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The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in thousands)
Index Adjusted EBITDA expenses $ 72,495 $ 59,652 $ 145,107 $ 125,321
Analytics Adjusted EBITDA
expenses 86,088 81,396 174,374 170,587
ESG and Climate Adjusted
EBITDA
expenses 33,588 20,803 63,293 42,410
All Other - Private Assets
Adjusted EBITDA
expenses 11,060 11,065 22,294 22,151
Consolidated Adjusted EBITDA
expenses 203,231 172,916 405,068 360,469
Amortization of intangible
assets 30,396 14,062 45,464 27,838
Depreciation and amortization
of property,
equipment and leasehold
improvements 7,020 7,463 14,163 15,030
Total operating expenses $ 240,647 $ 194,441 $ 464,695 $ 403,337 The discussion of the segment results is presented below.
Segment Results
Index Segment
The following table presents the results for the Index segment for the periods
indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
(in thousands)
Operating revenues:
Recurring subscriptions $ 160,061 $ 145,404 10.1 % $ 315,178 $ 285,244 10.5 %
Asset-based fees 136,142 88,075 54.6 % 262,848 188,271 39.6 %
Non-recurring 9,760 9,429 3.5 % 20,428 18,649 9.5 %
Operating revenues total 305,963 242,908 26.0 % 598,454 492,164 21.6 %
Adjusted EBITDA expenses 72,495 59,652 21.5 % 145,107 125,321 15.8 %
Adjusted EBITDA $ 233,468 $ 183,256 27.4 % $ 453,347 $ 366,843 23.6 %
Adjusted EBITDA margin % 76.3 % 75.4 % 75.8 % 74.5 %
Revenues related to Index products for the three months ended
Recurring subscriptions for the three months endedJune 30, 2021 increased 10.1% to$160.1 million compared to$145.4 million for the three months endedJune 30, 2020 . The increase was primarily driven by strong contributions from factors, ESG and climate index products and continued contribution from market cap-weighted index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible.
For the six months ended
Revenues from asset-based fees for the three months endedJune 30, 2021 increased 54.6% to$136.1 million compared to$88.1 million for the three months endedJune 30, 2020 . The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked toMSCI equity indexes that was primarily driven by a 66.4% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked toMSCI indexes, primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked toMSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. 30
-------------------------------------------------------------------------------- For the six months endedJune 30, 2021 , the increase was 39.6%, growing to$262.8 million compared to$188.3 million for the six months endedJune 30, 2020 . The increase in asset-based fees was driven by growth in revenues from all our index-linked investment product categories, including an increase in revenues from ETFs linked toMSCI equity indexes that was primarily driven by a 48.8% increase in average AUM in ETFs, partially offset by a decline in average basis point fees. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked toMSCI indexes, primarily driven by an increase in average AUM. Revenues from exchange traded futures and options contracts linked toMSCI indexes also increased, primarily driven by fee increases, partially offset by lower volume. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. Index segment Adjusted EBITDA expenses for the three months endedJune 30, 2021 increased 21.5% to$72.5 million compared to$59.7 million for the three months endedJune 30, 2020 , reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 17.3% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , the increase was 15.8%, growing to$145.1 million compared to$125.3 million for the six months endedJune 30, 2020 , reflecting higher expenses across all expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 12.6% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 .
Analytics Segment
The following table presents the results for the Analytics segment for the
periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
(in thousands)
Operating revenues:
Recurring subscriptions $ 133,368 $ 126,189 5.7 % $ 265,040 $ 250,254 5.9 %
Non-recurring 2,534 1,374 84.4 % 4,879 2,817 73.2 %
Operating revenues total 135,902 127,563 6.5 % 269,919 253,071 6.7 %
Adjusted EBITDA expenses 86,088 81,396 5.8 % 174,374 170,587 2.2 %
Adjusted EBITDA $ 49,814 $ 46,167 7.9 % $ 95,545 $ 82,484 15.8 %
Adjusted EBITDA margin % 36.7 % 36.2 % 35.4 % 32.6 %
Analytics segment revenues for the three months ended June 30, 2021 increased
6.5% to $135.9 million compared to $127.6 million for the three months ended
June 30, 2020 , primarily driven by growth in Equity and Multi-Asset Class
Analytics products. The impact of foreign currency exchange rate fluctuations on
Analytics segment revenues was negligible.
For the six months ended June 30, 2021 , the increase was 6.7%, growing to $269.9
million compared to $253.1 million for the six months ended June 30, 2020 ,
primarily driven by growth in Multi-Asset Class and Equity Analytics products.
The impact of foreign currency exchange rate fluctuations on Analytics segment
revenues was negligible.
Analytics segment Adjusted EBITDA expenses for the three months ended June 30,
2021 increased 5.8% to $86.1 million compared to $81.4 million for the three
months ended June 30, 2020 , reflecting higher expenses across all expense
activity categories. Adjusting for the impact of foreign currency exchange rate
fluctuations, the increase would have been 2.6% for the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 .
For the six months ended June 30, 2021 , the increase was 2.2%, growing to $174.4
million compared to $170.6 million for the six months ended June 30, 2020 ,
primarily driven by higher expenses across the cost of revenues and G&A expense
activity categories, partially offset by lower expense across the R&D expense
activity category. Adjusting for the impact of foreign currency exchange rate
fluctuations, it would have been flat for the six months ended June 30, 2021
compared to the six months ended June 30, 2020 .
31
--------------------------------------------------------------------------------ESG and Climate Segment
The following table presents the results for the ESG and Climate segment for the
periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
(in thousands)
Operating revenues:
Recurring subscriptions $ 38,567 $ 25,908 48.9 % $ 72,707 $ 50,809 43.1 %
Non-recurring 741 394 88.1 % 1,351 726 86.1 %
Operating revenues total 39,308 26,302 49.4 % 74,058 51,535 43.7 %
Adjusted EBITDA expenses 33,588 20,803 61.5 % 63,293 42,410 49.2 %
Adjusted EBITDA $ 5,720 $ 5,499 4.0 % $ 10,765 $ 9,125 18.0 %
Adjusted EBITDA margin % 14.6 % 20.9 % 14.5 % 17.7 %
ESG and Climate segment revenues for the three months ended June 30, 2021
increased 49.4% to $39.3 million compared to $26.3 million for the three months
ended June 30, 2020 . The increase in ESG and Climate revenues was primarily
driven by strong growth from Ratings and Climate products. Adjusting for the
impact of foreign currency exchange rate fluctuations, ESG and Climate operating
revenues would have increased 38.9%, for the three months ended June 30, 2021
compared to the three months ended June 30, 2020 .
For the six months ended June 30, 2021 , the increase was 43.7%, growing to $74.1
million compared to $51.5 million for the six months ended June 30, 2020 . The
increase in ESG and Climate revenues was primarily driven by strong growth from
Ratings and Climate products. Adjusting for the impact of foreign currency
exchange rate fluctuations, ESG and Climate operating revenues would have
increased 35.4%, for the six months ended June 30, 2021 compared to the six
months ended June 30, 2020 .
ESG and Climate segment Adjusted EBITDA expenses for the three months ended
June 30, 2021 increased 61.5% to $33.6 million compared to $20.8 million for the
three months ended June 30, 2020 , reflecting higher expenses across all expense
activity categories. Adjusting for the impact of foreign currency exchange rate
fluctuations, the increase would have been 55.4% for the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 .
For the six months ended June 30, 2021 , the increase was 49.2%, growing to $63.3
million compared to $42.4 million for the six months ended June 30, 2020 ,
reflecting higher expenses across all expense activity categories. Adjusting for
the impact of foreign currency exchange rate fluctuations, the increase would
have been 44.5% for the six months ended June 30, 2021 compared to the six
months ended June 30, 2020 .
All Other - Private Assets Segment
The following table presents the results for the All Other - Private Assets segment for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
(in thousands)
Operating revenues:
Recurring subscriptions $ 16,134 $ 12,383 30.3 % $ 32,937 $ 28,002 17.6 %
Non-recurring 873 460 89.8 % 1,235 1,624 (24.0 %)
Operating revenues total 17,007 12,843 32.4 % 34,172 29,626 15.3 %
Adjusted EBITDA expenses 11,060 11,065 (0.0 %) 22,294 22,151 0.6 %
Adjusted EBITDA $ 5,947 $ 1,778 234.5 % $ 11,878 $ 7,475 58.9 %
Adjusted EBITDA margin % 35.0 % 13.8 % 34.8 % 25.2 %
All Other - Private Assets segment revenues for the three months ended June 30,
2021 increased 32.4% to $17.0 million compared to $12.8 million for the three
months ended June 30, 2020 . The increase in All Other - Private Assets revenues
was primarily driven by strong growth in Enterprise Analytics products and
favorable foreign currency exchange rate fluctuations. Adjusting for the impact
of foreign currency exchange rate fluctuations, All Other - Private Assets
operating revenues would have increased 20.3% for the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 .
For the six months ended June 30, 2021 , the increase was 15.3%, growing to $34.2
million compared to $29.6 million for the six months ended June 30, 2020 . The
increase in All Other - Private Assets revenues was primarily driven by
favorable foreign currency exchange rate fluctuations and strong growth in
Enterprise Analytics products. Adjusting for the impact of foreign currency
exchange rate fluctuations, All Other - Private Assets operating revenues would
have increased 5.6% for the six months ended June 30, 2021 compared to the six
months ended June 30, 2020 .
32
-------------------------------------------------------------------------------- All Other - Private Assets segment Adjusted EBITDA expenses for the three months endedJune 30, 2021 remained flat at$11.1 million compared to the three months endedJune 30, 2020 , driven by lower expenses across the R&D and selling and marketing expense activity categories, offset by higher expenses across the cost of revenues and G&A expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other - Private Assets segment Adjusted EBITDA expenses would have decreased 6.3% for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , the increase was 0.6%, growing to$22.3 million compared to$22.2 million for the six months endedJune 30, 2020 , driven by higher expenses across the cost of revenues and G&A expense activity categories, partially offset by lower expenses across the R&D and selling and marketing expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other - Private Assets segment Adjusted EBITDA expenses would have decreased 4.2% for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 .Run Rate "Run Rate" estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements ("Client Contracts") for the next 12 months, assuming all Client Contracts that come up for renewal are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product's assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets.Run Rate does not include fees associated with "one-time" and other non-recurring transactions. In addition, we add 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 or fee waiver periods;
• fluctuations in asset-based fees, which may result from changes in certain
investment products' total expense ratios, market movements, including
foreign currency exchange rates, or from investment inflows into and
outflows from investment products linked to our indexes;
• fluctuations in fees based on trading volumes of futures and options
contracts linked to our indexes;
• fluctuations in the number of hedge funds for which we provide investment
information and risk analysis to hedge fund investors;
• price changes or discounts;
• revenue recognition differences under
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
June 30, June 30, %
2021 2020 Change
(in thousands)
Index:
Recurring subscriptions $ 653,448 $ 586,846 11.3 %
Asset-based fees 539,984 362,049 49.1 %
Index total 1,193,432 948,895 25.8 %
Analytics 563,938 534,039 5.6 %
ESG and Climate 164,092 113,662 44.4 %
All Other - Private Assets 58,088 50,715 14.5 %
Total Run Rate$ 1,979,550 $ 1,647,311 20.2 % Recurring subscriptions total$ 1,439,566 $ 1,285,262 12.0 % Asset-based fees 539,984 362,049 49.1 % Total Run Rate$ 1,979,550 $ 1,647,311 20.2 % TotalRun Rate grew 20.2% to$1,979.6 million as ofJune 30, 2021 compared to$1,647.3 million as ofJune 30, 2020 . Recurring subscriptionsRun Rate grew 12.0% to$1,439.6 million as ofJune 30, 2021 compared to$1,285.3 million as ofJune 30, 2020 . Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptionsRun Rate would have increased 11.3% as ofJune 30, 2021 compared toJune 30, 2020 .Run Rate from asset-based fees increased 49.1% to$540.0 million as ofJune 30, 2021 from$362.0 million as ofJune 30, 2020 , primarily driven by higher AUM in ETFs linked toMSCI equity indexes, higher AUM and new client agreements in non-ETF indexed funds linked toMSCI indexes and higher fees in exchange traded futures and options contracts linked toMSCI indexes. Partially offsetting the impact of the increase in AUM in ETFs linked toMSCI equity indexes was a change in fee levels of certain products, which was the primary driver of a decline in average basis point fees to 2.58 as ofJune 30, 2021 from 2.67 as ofJune 30, 2020 . As ofJune 30, 2021 , the value of AUM in ETFs linked toMSCI equity indexes was$1,336.2 billion , up$510.8 billion , or 61.9%, from$825.4 billion as ofJune 30, 2020 . The increase of$510.8 billion consisted of market appreciation of$309.6 billion and net inflows of$201.2 billion . Index recurring subscriptionsRun Rate grew 11.3% to$653.4 million as ofJune 30, 2021 compared to$586.8 million as ofJune 30, 2020 , primarily driven by growth in market cap-weighted index products and reflected growth across all regions and all client segments.Run Rate from Analytics products increased 5.6% to$563.9 million as ofJune 30, 2021 compared to$534.0 million as ofJune 30, 2020 , primarily driven by growth in both Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, AnalyticsRun Rate would have increased 5.0% as ofJune 30, 2021 .Run Rate from ESG and Climate products increased 44.4% to$164.1 million as ofJune 30, 2021 compared to$113.7 million as ofJune 30, 2020 , primarily driven by strong growth in both Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and ClimateRun Rate would have increased 41.7% as ofJune 30, 2021 compared toJune 30, 2020 .Run Rate from All Other - Private Assets products increased 14.5% to$58.1 million as ofJune 30, 2021 compared to$50.7 million as ofJune 30, 2020 , primarily driven by strong growth in both Enterprise Analytics and Global Intel products and growth from new sales of Real Estate Climate Value-at-Risk products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other - Private AssetsRun Rate would have increased 7.9% as ofJune 30, 2021 compared toJune 30, 2020 .
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 34
-------------------------------------------------------------------------------- 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 Six Months Ended
June 30, June 30, % June 30, June 30, %
2021 2020 Change 2021 2020 Change
(in thousands)
New recurring subscription
sales
Index $ 25,635 $ 20,276 26.4 % $ 46,491 $ 39,330 18.2 %
Analytics 16,282 14,979 8.7 % 28,492 26,197 8.8 %
ESG and Climate 17,756 11,202 58.5 % 29,396 18,196 61.6 %
All Other - Private Assets 1,860 1,146 62.3 % 3,544 2,321 52.7 %
New recurring subscription
sales total 61,533 47,603 29.3 % 107,923 86,044 25.4 %
Subscription cancellations
Index (6,791 ) (7,423 ) (8.5 %) (11,989 ) (12,539 ) (4.4 %)
Analytics (10,096 ) (10,553 ) (4.3 %) (15,975 ) (18,797 ) (15.0 %)
ESG and Climate (1,246 ) (1,755 ) (29.0 %) (2,298 ) (3,258 ) (29.5 %)
All Other - Private Assets (887 ) (488 ) 81.8 % (1,585 ) (1,038 ) 52.7 %
Subscription cancellations
total (19,020 ) (20,219 ) (5.9 %) (31,847 ) (35,632 ) (10.6 %)
Net new recurring subscription
sales
Index 18,844 12,853 46.6 % 34,502 26,791 28.8 %
Analytics 6,186 4,426 39.8 % 12,517 7,400 69.1 %
ESG and Climate 16,510 9,447 74.8 % 27,098 14,938 81.4 %
All Other - Private Assets 973 658 47.9 % 1,959 1,283 52.7 %
Net new recurring subscription
sales total 42,513 27,384 55.2 % 76,076 50,412 50.9 %
Non-recurring sales
Index 10,769 10,450 3.1 % 21,974 20,733 6.0 %
Analytics 2,773 1,659 67.1 % 5,746 4,924 16.7 %
ESG and Climate 1,140 416 174.0 % 1,837 567 224.0 %
All Other - Private Assets 185 158 17.1 % 1,071 1,038 3.2 %
Non-recurring sales total 14,867 12,683 17.2 % 30,628 27,262 12.3 %
Gross sales
Index $ 36,404 $ 30,726 18.5 % $ 68,465 $ 60,063 14.0 %
Analytics 19,055 16,638 14.5 % 34,238 31,121 10.0 %
ESG and Climate 18,896 11,618 62.6 % 31,233 18,763 66.5 %
All Other - Private Assets 2,045 1,304 56.8 % 4,615 3,359 37.4 %
Total gross sales $ 76,400 $ 60,286 26.7 % $ 138,551 $ 113,306 22.3 %
Net sales
Index $ 29,613 $ 23,303 27.1 % $ 56,476 $ 47,524 18.8 %
Analytics 8,959 6,085 47.2 % 18,263 12,324 48.2 %
ESG and Climate 17,650 9,863 79.0 % 28,935 15,505 86.6 %
All Other - Private Assets 1,158 816 41.9 % 3,030 2,321 30.5 %
Total net sales $ 57,380 $ 40,067 43.2 % $ 106,704 $ 77,674 37.4 %
35
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A significant portion of
Retention Rate
The following table presents our Retention Rate by reportable segment for the
periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Index 95.6% 94.7% 96.1% 95.5%
Analytics 92.7% 92.0% 94.2% 92.9%
ESG and Climate 96.4% 93.1% 96.7% 93.6%
All Other - Private Assets 93.7% 96.2% 94.4% 95.9%
Total 94.4% 93.5% 95.3% 94.2%
The annual Retention Rate represents the retained subscription Run Rate
(subscription Run Rate at the beginning of the fiscal year less actual cancels
during the year) as a percentage of the subscription Run Rate at the beginning
of the fiscal year. Retention Rate is an important metric because subscription
cancellations decrease our Run Rate and ultimately our future operating revenues
over time.
The Retention Rate for a non-annual period is calculated by annualizing the
cancellations for which we have received a notice of termination or for which we
believe there is an intention not to renew during the non-annual period, and we
believe that such notice or intention evidences the client's final decision to
terminate or not renew the applicable agreement, even though such notice is not
effective until a later date. This annualized cancellation figure is then
divided by the subscription Run Rate at the beginning of the fiscal year to
calculate a cancellation rate. This cancellation rate is then subtracted from
100% to derive the annualized Retention Rate for the period.
Retention Rate is computed by operating segment on a
product/service-by-product/service basis. In general, if a client reduces the
number of products or services to which it subscribes within a segment, or
switches between products or services within a segment, we treat it as a
cancellation for purposes of calculating our Retention Rate except in the case
of a product or service switch that management considers to be a replacement
product or service. In those replacement cases, only the net change to the
client subscription, if a decrease, is reported as a cancel. In the Analytics
and the ESG and Climate operating segments, substantially all product or service
switches are treated as replacement products or services and netted in this
manner, while in our Index and Real Estate operating segments, product or
service switches that are treated as replacement products or services and
receive netting treatment occur only in certain limited instances. In addition,
we treat any reduction in fees resulting from a down-sell of the same product or
service as a cancellation to the extent of the reduction. We do not calculate
Retention Rate for that portion of our Run Rate attributable to assets in
index-linked investment products or futures and options contracts, in each case,
linked to our indexes.
Retention Rate is generally higher during the first three quarters and lower in
the fourth quarter, as the fourth quarter is traditionally the largest renewal
period in the year.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, "Introduction and Basis of Presentation," of the Notes to Consolidated Financial Statements included in our Form 10-K. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year endedDecember 31, 2020 .
Liquidity and Capital Resources
We require capital to fund ongoing operations, internal growth initiatives and
acquisitions. Our primary sources of liquidity are cash flows generated from our
operations, existing cash and cash equivalents and credit capacity under our
existing credit facility. In addition, we believe we have access to additional
funding in the public and private markets. We intend to use these sources of
liquidity to, among other things, service our existing and future debt
obligations, fund our working capital requirements for capital expenditures,
investments, acquisitions and dividend payments, and repurchases of our common
stock. In connection with our business strategy, we regularly evaluate
acquisition and strategic partnership opportunities. We believe our liquidity,
along with other financing alternatives, will provide the necessary capital to
fund these transactions and achieve our planned growth.
36
--------------------------------------------------------------------------------Senior Notes and Credit Agreement
We have an aggregate of$4,000.0 million in Senior Notes outstanding and a$500.0 million undrawn Revolving Credit Agreement with a syndicate of banks. See Note 7, "Commitments and Contingencies," of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our Senior Notes and Revolving Credit Agreement. The Senior Notes and the Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly owned domestic subsidiaries that account for more than 5% of our and our subsidiaries' consolidated assets, other than certain excluded subsidiaries (the "subsidiary guarantors"). Amounts due under the Revolving Credit Agreement are our and the subsidiary guarantors' senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt. The indentures governing our Senior Notes (the "Indentures") among us, each of the subsidiary guarantors, 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; • in the case of our subsidiaries that are not guarantors under the Revolving Credit Agreement, incur additional indebtedness;
• merge, dissolve, liquidate, consolidate with or into another person or
sell all or substantially all assets of the Company and its subsidiaries
on a consolidated basis;
• enter into sale/leaseback transactions;
• pay dividends or make other distributions in respect of our capital stock
or engage in stock repurchases, redemptions and other restricted payments;
or
• change the nature of our business.
The Revolving Credit Agreement and the Indentures also contain customary events
of default, including those relating to non-payment, breach of representations,
warranties or covenants, cross-default and cross-acceleration, and bankruptcy
and insolvency events, and, in the case of the Revolving Credit Agreement,
invalidity or impairment of loan documentation, change of control and customary
ERISA defaults in addition to the foregoing. None of the restrictions above are
expected to impact our ability to effectively operate the business.
The Revolving Credit Agreement also requires us and our subsidiaries to achieve
financial and operating results sufficient to maintain compliance with the
following financial ratios on a consolidated basis through the termination of
the Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as
defined in the Revolving Credit Agreement) measured quarterly on a rolling
four-quarter basis shall not exceed 4.25:1.00 (or 4.50:1.00 for two fiscal
quarters following a material acquisition) and (2) the minimum Consolidated
Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured
quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of
June 30, 2021 , our Consolidated Leverage Ratio was 3.45:1.00 and our
Consolidated Interest Coverage Ratio was 7.55:1.00. As of June 30, 2021 , there
were no amounts drawn and outstanding under the Revolving Credit Agreement.
Our non-guarantor subsidiaries under the Senior Notes consist of: (i) domestic
subsidiaries of the Company that account for 5% or less of consolidated assets
of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary
of the Company that is deemed to be a controlled foreign corporation within the
meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our
non-guarantor subsidiaries accounted for approximately $1,109.3 million , or
60.1%, of our total revenue for the trailing 12 months ended June 30, 2021 ,
approximately $407.9 million , or 41.9%, of our consolidated operating income for
the trailing 12 months ended June 30, 2021 , and approximately $1,064.8 million ,
or 22.2%, of our consolidated total assets (excluding intercompany assets) and
$717.6 million , or 13.9%, of our consolidated total liabilities, in each case as
of June 30, 2021 .
37
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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
Six Months Ended Share Repurchased Repurchased
(in thousands)
June 30, 2021 $ 407.70 330 $ 134,340
June 30, 2020 $ 250.65 1,423 $ 356,770 As of
Cash Dividend
OnJuly 26, 2021 , the Board of Directors declared a quarterly cash dividend of$1.04 per share for the three months endingSeptember 30, 2021 . This reflects an increase of 33.3% over the quarterly cash dividend declared for the three months endedJune 30, 2021 . The third quarter 2021 dividend is payable onAugust 31, 2021 to shareholders of record as of the close of trading onAugust 13, 2021 . Cash Flows As of June 30, December 31, 2021 2020 (in thousands) Cash and cash equivalents$ 1,972,002 $ 1,300,521 Cash and cash equivalents were$1,972.0 million and$1,300.5 million as ofJune 30, 2021 andDecember 31, 2020 , respectively. We typically seek to maintain minimum cash balances globally of approximately$200.0 million to$250.0 million for general operating purposes. As ofJune 30, 2021 andDecember 31, 2020 ,$491.3 million and$423.4 million , respectively, of the cash and cash equivalents were held by foreign subsidiaries. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. The global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes or other needs, including acquisitions or expansion of our products. We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter. Net Cash Provided by (Used In) Operating, Investing and Financing Activities Six Months Ended June 30, 2021 2020 (in thousands) Net cash provided by operating activities$ 440,514 $
375,386
Net cash used in investing activities (22,321 ) (213,174 ) Net cash provided by (used in) financing activities 256,858 (275,051 ) Effect of exchange rate changes (3,570 ) (8,751 ) Net increase (decrease) in cash$ 671,481 $ (121,590 ) 38
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Cash Flows From Operating Activities
Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was$440.5 million and$375.4 million for the six months endedJune 30, 2021 and 2020, respectively. The year-over-year increase was driven by higher cash collections from customers and lower interest payments, partially offset by higher payments for income taxes and cash expenses. Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent, technology costs, market data costs, interest expenses and income taxes. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash Flows From Investing Activities
Cash used in investing activities was$22.3 million for the six months endedJune 30, 2021 compared to$213.2 million for the six months endedJune 30, 2020 . The year-over-year change was primarily driven by the absence of the$190.8 million equity method investment in Burgiss.
Cash Flows From Financing Activities
Cash provided by financing activities was$256.9 million for the six months endedJune 30, 2021 compared to cash used in financing activities of$275.1 million for the six months endedJune 30, 2020 . The year-over-year change was primarily driven by the impact of lower repayment on borrowings and lower share repurchases, partially offset by the impact of lower proceeds from the new senior notes offerings made during the six months endedJune 30, 2021 .
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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