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MarketScreener Homepage  >  Equities  >  Nyse  >  MSCI, Inc.    MSCI

MSCI, INC.

(MSCI)
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MSCI : Q3 2020 Earnings Presentation

10/27/2020 | 09:40am EST

MSCI

THIRD QUARTER 2020

EARNINGS PRESENTATION

October 27, 2020

© 2020 MSCI Inc. All rights reserved.

Forward-Looking Statements

  • This earnings presentation contains forward-looking statements within the meaning of the
    Private Securities Litigation Reform Act of 1995, including without limitation, MSCI's full-year 2020 guidance. These forward-looking statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential" or "continue," or the negative of these terms or other comparable terminology. You should not place undue reliance on forward- looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond MSCI's control and that could materially affect actual results, levels of activity, performance or achievements.
  • Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in MSCI's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC") on February
    18, 2020 and in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. If any of these risks or uncertainties materialize, or if MSCI's underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI projected. Any forward-looking statement in this earnings presentation reflects
    MSCI's current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI's operations, results of operations, growth strategy and liquidity. MSCI assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law.

2

Other Information

Percentage changes and totals in this earnings presentation may not sum due to rounding. Percentage changes refer to the comparable period in 2019, unless otherwise noted.

  • Gross sales include both new recurring subscription and non-recurring sales as reported in Table 6: Sales and Retention Rate by Segment (unaudited) of the press release reporting
    MSCI's financial results for third quarter 2020.
  • 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 assets under management ("AUM"), which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. More than three-fifths of the AUM are invested in securities denominated in currencies other than the U.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency adjusted variances.

3

MSCI 3Q20 Earnings Call Participants

Henry Fernandez, Chairman & CEO

Baer Pettit, President & COO

Andy Wiechmann, CFO & Chief Strategy Officer

Salli Schwartz, Head of IR & Treasurer

4

Financial & Strategic

Highlights

5

3Q20 Financial Results

Solid Top Line Growth

Revenue Growth

Subscription Run Rate Growth

Reported / Organic

as of September 30, 2020

Reported / Organic

+8% / +7%

+10% / +9%

Strong Expense Management

Adj. EBITDA Margin /

Adj. EBITDA Growth /

Operating Margin

Operating Income Growth

58.6% (+265 bps) /

+13% / +13%

53.5% (+248 bps)

Tax

Capital

Effective Tax Rate /

3Q20 Share Repurchases /

Adjusted Tax Rate

4Q20 QTD1 Share Repurchases

3.5% / 6.4%

$206.6M (598,031 shares) /

$51.0M (147,001 shares)

Strong Earnings

Growth

Adjusted EPS

Growth

+31%

Diluted EPS

Growth

+35%

1For the period October 1, 2020 through October 23, 2020.

6

Continued Progress on our Strategic Initiatives

Product Areas

Client Segments

Capabilities

  • ESG and climate
  • Fixed income and liquidity
  • Thematics
  • Derivatives
  • Factors
  • Private assets
  • Broker-dealers
  • Wealth managers
  • Corporates
  • Insurance companies
  • Private asset managers
  • Technology and data
  • Virtual and remote connectivity
  • Distribution
  • Partnerships

Note: Product areas circled by blue box include those referenced on MSCI's third quarter 2020 earnings conference call.

7

Significant Growth Across ESG and Climate

Firmwide ESG and Climate Run Rate1

AUM in Equity ETFs linked to MSCI ESG and Climate Indexes

(US$ in millions)

45.9%

$131

$38

$93

$192

$69

$122

(US$ in billions)

$71

185.6%

$25

3Q19

3Q20

3Q19

3Q20

1Firmwide ESG and Climate Run Rate includes ESG Run Rate, reported in the All Other segment, and ESG-related Index

8

subscription and asset-based fees Run Rate reported in the Index segment.

Expanding MSCI's Fixed Income Franchise

9

Growing the MSCI-Linked Product Ecosystem

Deeper liquidity drives a virtuous circle of enhanced and new uses across products and clients, benefiting the investment community

Clients demand more

Index based solutions -

asset owner and

manager utilization

grows

The number of use cases grows across exposures, including Market Cap, ESG, Factors and Thematic

More products and hedging instruments facilitate broader adoption

Strong index franchise

More users and use cases

Adoption of indexed

Growth of

investing and MSCI-linked

ETFs grows

index-linked

products

Futures and options allow broker dealers to hedge exposure trades and asset owners and managers to equitize cash flows

Deeper liquidity

MSCI futures and options

become more attractive to

Futures liquidity facilitates hedging, driving structured product issuance and newer client uses

Derivatives

investors and product

issuers

growth

Note: Structured Products are securities whose value is derived from, or based on, a reference asset, market measure or investment strategy

10

Save the Date:

MSCI Virtual Investor Day

February 24, 2021

New York morning time

Company & Operating Update

12

3Q20 Operating Highlights

(US$ in millions)

Run Rate

$1,551

$1,720

$900

$1,000

$509

$544

ABF

$356

$401

$141

$175

RR1

3Q19

3Q20

3Q19

3Q20

3Q19

3Q20

3Q19

3Q20

MSCI

Index

Analytics

All Other

Highlights

  • Best 3Q in history for new recurring subscription sales across MSCI
  • Subscription run rate growth across allclient segments including Asset Managers, Hedge Funds, Wealth
  • Index Run Rate Reaches $1.0B for first time
  • Double-digitnew recurring subscription sales growth in the Americas and EMEA
  • Record 3Q for ESG gross and new recurring subscription sales

1ABF RR: Asset-Based Fees Run Rate.

13

Leveraging our Deep and Broad ESG and Climate Content Universe

MSCI UN Sustainable Development Goal

(SDG) Alignment Tool

MSCI Real Estate Climate Value-at-Risk

(Climate VaR)

MSCI Fixed Income Climate Change Indexes

14

3Q20: Continued Futures & Options Momentum

Futures & Options Volume Linked to MSCI Indexes

(in millions of contracts traded1)

Futures & Options Run Rate

(US$ in millions)

CAGR:

CAGR:

11.4% 29.4

26.2

23.8

20.7

17.0

$13.0

$9.8

49.7%

$49.1

$30.6

$15.7

3Q16

3Q17

3Q18

3Q19

3Q20

3Q16

3Q17

3Q18

3Q19

3Q20

1Contract volumes traded may not tie to volume figures used for calculating Futures & Options Run Rate.

15

Open Architecture Strategy Aided by Variety of Distribution Channels

MSCI ESG Research on third party platforms

including Bloomberg Terminals

MSCI ESG Research on MSCI ESG Manager and other MSCI platforms and data feeds

16

Key Operating Metrics Have Been Resilient

YoY Subscription Run Rate Growth (as Reported)

11%

9%

10%

10%

9%

9%

7%

8%

6%

6%

11%

9%

7%

11%

10%

8%

7%

7%

7%

7%

7%

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Subscription Run Rate Growth as Reported

Retention Rate Trends

94.8%

95.1%

92.7%

94.7%

94.0%

94.6%

95.0%

95.2%

95.0%

95.0%

94.5%

93.1%

94.9%

91.6%

94.1%

92.9%

95.5%

92.9%

93.5%

90.4%

89.9%

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20

Retention Rate (%)

17

Financial Update

18

3Q20 Summary Financial Results

(US $ in thousands, except per share data)

For the Three Months Ended

September 30,

(Unaudited)

2020

2019

YoY% Change

Operating revenues

$

425,333

$

394,251

7.9%

Operating income

$

227,620

$

201,219

13.1%

Operating margin %

53.5%

51.0%

Net income

$

182,358

$

136,983

33.1%

Diluted EPS

$

2.16

$

1.60

35.0%

Adjusted EPS

$

2.20

$

1.68

31.0%

Adjusted EBITDA

$

249,447

$

220,789

13.0%

Adjusted EBITDA margin %

58.6%

56.0%

19

3Q20 QoQ AUM Drivers: MSCI-Linked Equity ETFs

(US$ in billions)

By Geographic Exposure

Cash inflows / (outflows):

$57.0

$26.5

$16.8

$20.7

$19.5

$825.4

$14.7

$5.2

$6.6

$908.9

U.S.

DM ex. U.S.

EM

2Q20 Ending AUM

U.S.

Developed

Emerging Markets

Market Change

3Q20 Ending AUM

Markets ex U.S.

By Product

Cash inflows / (outflows):

$57.0

$26.5

$4.7

$8.1

$44.1

$825.4

$14.2

$0.9

$11.4

$908.9

ESG & Climate

Factors

Market Cap

Weighted

2Q20 Ending AUM

Market Cap

Factors

ESG & Climate

Market Change

3Q20 Ending AUM

Weighted

20

Index Segment: Asset-Based Fees Details

(US$ in millions, except AUM in billions and Average BPS)

Asset-based Fees (ABF)

Revenue

Futures & Options

Non-ETF

ETF

+4.5%

YoY

$96.0

$100.4

$88.1

$12.8

+3.3%

$12.4

$8.6

$27.0+4.3%

$25.9

$26.8

+4.9%

$60.6

$57.7

$52.7

Quarterly Average AUM and Period-End Basis Point Fee1 of Equity ETFs linked to MSCI Indexes

Average AUM

Period-End Basis Point Fee

2.81

2.82

2.71

2.67

2.67

$810.9 $869.1 $877.1 $776.9 $893.4

Quarter-End AUM by Market

Exposure2 of Equity ETFs linked to MSCI Indexes

US

EM

DM ex US

+11.5%

$908.9 YoY

$815.0

$825.4

+25.2%

$259.4

$207.3

$236.1

+6.3%

$251.3

$236.3

$226.5

+7.2%

$398.2

$371.4

$362.8

3Q19

2Q20

3Q20

3Q19

4Q19

1Q20

2Q20

3Q20

3Q19

2Q20

3Q20

1Based on period-end Run Rate for equity ETFs linked to MSCI indexes using period-end AUM. Please refer to Table 7: AUM in Equity ETFs Linked to MSCI Indexes (unaudited) of the press release reporting MSCI's financial results for third quarter 2020.

2US = Equity ETFs linked to MSCI indexes, the majority of whose weight is comprised of securities in MSCI Developed Market (DM) countries, primarily or exclusively in the US; DM ex US = Equity ETFs linked to MSCI indexes, the majority of whose weight is comprised of securities in MSCI DM countries other than the US; EM = Equity ETFs linked to MSCI indexes, the majority of whose weight is comprised of securities that are not in MSCI DM 21 countries. Prior periods have been reclassified to conform to the current period classification. Note: The AUM in equity ETFs also includes AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.

Adjusted Earnings Per Share Growth Drivers

(US$ in per share amounts)

% of

Business Growth

Capital Activities

Tax

FX / Other

Total:

46%

(4%)

56%

2%

+$0.24

($0.02)

+$0.30

$1.68 $0.28

($0.04) $0.03 ($0.05)

+ 31.0%

YoY

$2.20

$0.01

$0.29

3Q19

Revenue

Expenses

Sharecount Net Interest Lower Adjusted FX/Other

3Q20

Adjusted EPS

ex. FX

Tax Rate

Adjusted EPS

Strong Adjusted Earnings Per Share growth

22

Capital and Liquidity

(US$ in millions, unless otherwise noted)

Cash1 and Debt2 as of 9/30/2020

  • Total Cash of $1,303
  • Total Debt of $3,366
  • Net Debt of $2,063
  • Total Debt / TTM3 Adj. EBITDA of 3.6x
  • Net Debt / TTM3 Adj. EBITDA of 2.2x

Unsecured Debt Maturity Profile

$400 million revolver

$1,000 $1,000

Continued Capital Discipline

  • Strong balance sheet provides optionality
    • Next maturity not until 2026
  • Disciplined and consistent approach to deployment
    • Triple-Crownframework to evaluate internal opportunities and MP&A (mergers, partnerships and acquisitions)
  • Remaining capital returned to shareholders through dividends and opportunistic share repurchases

$500 $500

$400

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

  • $65.3 million in dividends paid to shareholders in 3Q20
  • $257.6 million of share repurchases during 3Q20 and through October 23, 2020, a total of 745,032 shares at an average price of $345.78 per share

1MSCI typically seeks 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

2Reflects gross debt, inclusive of deferred financing fees23 3Trailing twelve months

Full-Year 2020 Guidance

Guidance Item

Current Guidance for Full-Year 2020

Prior Guidance for Full-Year 2020

Operating Expense

$800 to $820 million

$790 to $840 million

Adjusted EBITDA

$710 to $730 million

$700 to $750 million

Expense

Interest Expense

(including

~$158 million

~$158 million

amortization of

financing fees)1

Depreciation &

~$90 million

~$90 million

Amortization Expense

Effective Tax Rate

11.5% to 13.5%

16% to 19%

Capital Expenditures

$50 to $55 million

$50 to $60 million

Net Cash Provided by

$705 to $750 million

$600 to $650 million

Operating Activities

(toward the upper end of the range)

Free Cash Flow

$650 to $700 million

$540 to $600 million

(toward the upper end of the range)

Note: MSCI's guidance for 2020 is based on assumptions about a number of macroeconomic and capital market factors, in particular related to equity markets. These assumptions are subject to uncertainty, and actual results for the year could differ materially from our current guidance, including as a result of ongoing uncertainty related to the duration, magnitude

and impact of the COVID-19 pandemic.24

(1) Interest income will continue to be impacted by the lower rates available on cash balances.

Q&A

25

Appendix

26

3Q20 Segment Operating Revenues

(US$ in millions)

Index

Non-Recurring Revenues

Asset-Based Fees Revenues

Recurring Subscription Revenues

+7.6%

+7.7%

Organic

$255.7

$237.4 $8.9+11.5% $8.0

Analytics

All Other

Non-Recurring Revenues

Non-Recurring Revenues

Recurring Subscription Revenues

Recurring Subscription Revenues

+3.8%

+3.8%

+18.6%

Organic

+24.3%

$128.3

Organic

$123.6

$2.1

+40.7%

$41.3

$1.5

$0.8

+18.4%

$33.2

$96.0

$100.4 +4.5%

+9.7%

$0.6

+3.4%

+24.4%

$122.1

$126.3

$40.6

$32.6

$133.4 $146.4

3Q19

3Q20

3Q19

3Q20

3Q19

3Q20

27

Continued Growth in Firmwide Factor Franchise

(US$ in millions)

Integrated Factor1 Run Rate

+7.5%

$270

$251

3Q1923Q20

1Integrated Factor Run Rate includes Factor module Run Rate in the Analytics segment, and Factor-related Index subscription and asset-based fees

Run Rate excluding traditional value and growth product Run Rate for Indexes.28 2We have revised our methodology for reporting our Factors franchise. As a result, 3Q19 Run Rate figures have been recast to conform to the current period's presentation.

3Q20 YoY AUM Drivers: MSCI-Linked Equity ETFs

(US$ in billions)

3Q20 YoY Change in Equity ETF AUM Linked to MSCI Indexes

Cash inflows / (outflows):

$72.4

$21.5

$15.5

$5.8

$8.0

($2.1)

$29.9

$815.0 $36.7

$908.9

U.S.

EM

DM ex. U.S.

3Q19

U.S.

Developed

Emerging

Market Change

3Q20

Ending AUM

Markets ex U.S.

Markets

Ending AUM

29

3Q20: Over 10% Total Subscription Run Rate Growth

(US$ in millions)

Index (ex. ABF)

Factor & ESG

Custom & Specialized

Market Cap Weighted

+10.1%

+10.1%

Organic

$599

$544

$57

+20.9%

$47

$76

+16.3%

$65

Analytics

Equity Analytics

Multi-Asset Class Analytics

+5.9%

+6.9% $544 Organic

$509

$151

$143+6.0%

All Other

Real Estate

ESG

+19.5%

+24.0%

Organic

$175

$141

$53 +10.2%

$48

+31.2%

$431 $466

+7.9%

$366

$393

+7.2%

$122

$93

3Q19 3Q20

Demand Across All Modules

3Q19 3Q20

Growth Across

Multi-Asset Class & Equity

Analytics Products

3Q19 3Q20

Increasing Focus on

Sustainable Investing and

Private Assets

30

3Q15 to 3Q20 YoY Subscription Run Rate Growth

YoY Subscription Run Rate Growth (as Reported and Organic)

9%

9%

11%

11%

10%

10%

10%

10%

10%

10%

11%

10%

10%

10%

8% 8%

8%

7%

8%

7%

8%

11%

10%

10%

9%

9%

10%

10%

9%

8%

9%

8%

8%

6% 7%

7%

7%

7%

7%

7%

7%

6%

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20

Subscription Run Rate Growth as Reported Organic Subscription Run Rate Growth

31

3Q15 to 3Q20 YoY Segment Run Rate Growth

Index

38%

37%

46%

38%

27%

21%

21%

11%15%

13%

11%

11%

13%

11%

12%

11%

11%

11%

11%

13%

10%

10%

10%

10%

10%

11%

12%

10%

11%

5%

9%

4%

6%

10%

5%

-3%

10%

8%

-2%

1%

5%

10%

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

Subscription Run Rate Growth as Reported

Asset-Based Fees Run Rate Growth as Reported

Analytics

6%

7%

6%

6%

8%

8%

7%

7%

7%

7%

7%

6%

7%

7%

6%

7%

5%

5%

5%

5%

4%

4%

7%

7%

7%

6%

3%

6%

5%

3%

6%

6%

3%

5%

5%

2%

4%

4%

3%

0.5%0.3%

2%

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

Subscription Run Rate Growth as Reported

Organic Subscription Run Rate Growth

All Other

23%

25%

21%

20%

20%

22%

20%

24%

17%

20%

19%

19%

18%

15%

14%

13%

21%

11%

10%

12%

10%

11%

19%

19%

20%

20%

17%

18%

18%

17%

17%

5%

7%

5%

14%

15%

15%

11%

5%

12%

4%

4%

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

Subscription Run Rate Growth as Reported

Organic Subscription Run Rate Growth

32

Use of Non-GAAP Financial Measures

  • MSCI has presented supplemental non-GAAP financial measures as part of this earnings presentation. Reconciliations are provided in slides 35-41 that reconcile each non-GAAP financial measure with the most comparable GAAP measure. The non-GAAP financial measures presented in this earnings presentation should not be considered as alternative measures for the most directly comparable GAAP financial measures. The non-GAAP financial measures presented in this earnings presentation are used by management to monitor the financial performance of the business, inform business decision-making and forecast future results.
  • "Adjusted EBITDA" 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 multi-year restricted stock units subject to performance payout adjustments granted in 2016 (the "Multi-Year PSUs").
  • "Adjusted EBITDA expenses" 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 Multi-Year PSUs.
  • "Adjusted net income" and "adjusted EPS" are defined as net income and diluted EPS, respectively, before the after-tax impact of the amortization of acquired intangible assets, including the amortization of the basis difference between the cost of the equity method investment and MSCI's share of the net assets of the investee at historical carrying value, the impact of divestitures, the impact of adjustments for the Tax Cuts and Jobs Act that was enacted on December 22,
    2017 ("Tax Reform"), except for amounts associated with active tax planning implemented as a result of Tax Reform, and, at times, certain other transactions or adjustments, including the impact related to the vesting of the Multi-Year PSUs and costs associated with debt extinguishment.
  • "Adjusted tax rate" is defined as the effective tax rate excluding the impact of Tax Reform adjustments (except for amounts associated with active tax planning implemented as a result of Tax Reform) and the impact related to the vesting of the Multi-Year PSUs.
  • "Capex" is defined as capital expenditures plus capitalized software development costs.
  • "Free cash flow" is defined as net cash provided by operating activities, less Capex.
  • "Organic operating revenue growth" is defined as operating revenue growth compared to the prior year period excluding the impact of acquired businesses, divested businesses and foreign currency exchange rate fluctuations.
  • Asset-basedfees ex-FX does not adjust for the impact from foreign currency exchange rate fluctuations on the underlying AUM.
  • We believe adjusted EBITDA and adjusted EBITDA expenses are meaningful measures of the operating performance of MSCI 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 our ongoing operating performance in the period.
  • We believe adjusted net income and adjusted EPS are meaningful measures of the performance of MSCI because they adjust for the after-tax impact of significant one-time, unusual or non-recurring items as well as eliminate the impact of any transactions that do not directly affect what management considers to be our ongoing operating performance in the period. We also exclude the after-tax impact of the amortization of acquired intangible assets and amortization of the basis difference between the cost of the equity method investment and MSCI's share of the net assets of the investee at historical carrying value, as these non-cash amounts are significantly impacted by the timing and size of each acquisition and therefore not meaningful to the ongoing operating performance in the period.
  • We believe that adjusted tax rate is useful to investors because it increases the comparability of period-to-period results by adjusting for the estimated net impact of Tax Reform and the impact related to the vesting of the Multi-Year PSUs.
  • We believe that free cash flow is useful to investors because it relates the operating cash flow of MSCI to the capital that is spent to continue and improve business operations, such as investment in MSCI's existing products. Further, free cash flow indicates our ability to strengthen MSCI's balance sheet, repay our debt obligations, pay cash dividends and repurchase shares of our common stock.
  • We believe organic operating revenue growth is a meaningful measure of the operating performance of MSCI because it adjusts for the impact of foreign currency exchange rate fluctuations and excludes the impact of operating revenues attributable to acquired and divested businesses for the comparable prior year period, providing insight into our ongoing operating performance for the period(s) presented.
  • We believe that the non-GAAP financial measures presented in this earnings presentation facilitate meaningful period-to-period comparisons and provide a baseline for the evaluation of future results.
  • Adjusted EBITDA expenses, adjusted EBITDA, adjusted net income, adjusted EPS, adjusted tax rate, Capex, free cash flow and organic operating revenue growth are not defined in the same manner by all companies and may not be comparable to similarly-titlednon-GAAP financial measures of other companies. 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 these measures may not be comparable to similarly titled measures computed by other companies.

33

Use of Operating Metrics

  • MSCI has presented supplemental key operating metrics as part of this earnings presentation, including Retention Rate, Run Rate, subscription sales, subscription cancellations and non-recurring sales.
  • 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 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-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.
  • Run Rate estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements ("Client Contracts") for the next 12 months, assuming all Client Contracts that come up for renewal are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product's assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets. Run Rate does not include fees associated with "one-time" and other non-recurring transactions. In addition, we add to Run Rate the annualized fee value of recurring new sales, whether to existing or new clients, when we execute Client Contracts, even though the license start date, and associated revenue recognition, may not be effective until a later date. We remove from Run Rate the annualized fee value associated with products or services under any Client Contract with respect to which we have received a notice of termination or non- renewal during the period and have determined that such notice evidences the client's final decision to terminate or not renew the applicable products or services, even though such notice is not effective until a later date.
  • "Organic subscription Run Rate growth" is defined as the period over period Run Rate growth, excluding the impact of changes in foreign currency and the first year impact of any acquisitions. It is also adjusted for divestitures. Changes in foreign currency are calculated by applying the currency exchange rate from the comparable prior period to current period foreign currency denominated Run Rate.
  • Sales represents the annualized value of products and services clients commit to purchase from MSCI and will result in additional operating revenues. Non- recurring sales represent the actual value of the customer agreements entered into during the period and are not a component of Run Rate. New recurring subscription sales represent additional selling activities, such as new customer agreements, additions to existing agreements or increases in price that occurred during the period and are additions to Run Rate. Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or reductions in price, resulting in reductions to Run Rate. Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact to Run Rate during the period.
  • Total gross sales represent the sum of new recurring subscription sales and non-recurring sales. Total net sales represent the total gross sales net of the impact from subscription cancellations.

34

Reconciliation of Adjusted EBITDA to Net Income

(UNAUDITED)

Three Months Ended

Nine Months Ended

Sep. 30,

Sep. 30,

Sep. 30,

Sep. 30,

In thousands

2020

2019

2020

2019

Index adjusted EBITDA

$

194,720

$

177,680

$

561,563

$

493,806

Analytics adjusted EBITDA

45,056

37,797

127,540

113,266

All Other adjusted EBITDA

9,671

5,312

26,271

23,220

Consolidated adjusted EBITDA

249,447

220,789

715,374

630,292

Multi-Year PSU payroll tax expense

-

-

-

15,389

Amortization of intangible assets

14,333

12,361

42,171

36,167

Depreciation and amortization of property,

equipment and leasehold improvements

7,494

7,209

22,524

22,464

Operating income

227,620

201,219

650,679

556,272

Other expense (income), net

38,577

32,471

159,620

99,487

Provision for income taxes

6,685

31,765

45,453

15,920

Net income

$

182,358

$

136,983

$

445,606

$

440,865

35

Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS (UNAUDITED)

Three Months Ended

Nine Months Ended

Sep. 30,

Sep. 30,

Sep. 30,

Sep. 30,

In thousands, except per share data

2020

2019

2020

2019

Net income

$

182,358

$

136,983

$

445,606

$

440,865

Plus: Amortization of acquired intangible assets and

equity method investment basis difference

9,515

8,616

27,885

25,995

Plus: Multi-Year PSU payroll tax expense

-

-

-

15,389

Less: Discrete excess tax benefit related to

Multi-Year PSU vesting

-

-

-

(66,581

)

Plus: Debt extinguishment costs associated with the

2024 and 2025 Senior Notes Redemptions

-

-

44,930

-

Less: Tax Reform adjustments

(5,497

)

-

(6,256

)

-

Less: Income tax effect

(532

)

(1,702

)

(14,483

)

(7,474

)

Adjusted net income

$

185,844

$

143,897

$

497,682

$

408,194

Diluted EPS

$

2.16

$

1.60

$

5.26

$

5.15

Plus: Amortization of acquired intangible assets and

equity method investment basis difference

0.11

0.10

0.33

0.30

Plus: Multi-Year PSU payroll tax expense

-

-

-

0.18

Less: Discrete excess tax benefit related to

Multi-Year PSU vesting

-

-

-

(0.78

)

Plus: Debt extinguishment costs associated with the

2024 and 2025 Senior Notes Redemptions

-

-

0.53

-

Less: Tax Reform adjustments

(0.07

)

-

(0.07

)

-

Less: Income tax effect

-

(0.02

)

(0.18

)

(0.08

)

Adjusted EPS

$

2.20

$

1.68

$

5.87

$

4.77

36

Reconciliation of Adjusted EBITDA Expenses to Operating Expenses (UNAUDITED)

Three Months Ended

Nine Months Ended

Full-Year

Sep. 30,

Sep. 30,

Sep. 30,

Sep. 30,

2020

In thousands

2020

2019

2020

2019

Outlook(1)

Index adjusted EBITDA expenses

$

60,971

$

59,747

$

186,292

$

183,944

Analytics adjusted EBITDA expenses

83,281

85,806

253,868

255,453

All Other adjusted EBITDA expenses

31,634

27,909

96,195

81,501

Consolidated adjusted EBITDA expenses

175,886

173,462

536,355

520,898

$710,000 - $730,000

Multi-Year PSU payroll tax expense

-

-

-

15,389

Amortization of intangible assets

14,333

12,361

42,171

36,167

Depreciation and amortization of property,

~$90,000

equipment and leasehold improvements

7,494

7,209

22,524

22,464

Total operating expenses

$

197,713

$

193,032

$

601,050

$

594,918

$800,000 - $820,000

1We have not provided a line-item reconciliation for adjusted EBITDA expenses to total operating expenses for this future period because we do not provide guidance on the individual

37

reconciling items between total operating expenses and adjusted EBITDA expenses.

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (UNAUDITED)

Three Months Ended

Nine Months Ended

Full-Year

Sep. 30,

Sep. 30,

Sep. 30,

Sep. 30,

2020

In thousands

2020

2019

2020

2019

Outlook(1)

Net cash provided by operating activities

$

199,795

$

188,535

$

575,181

$

465,880

$705,000 - $750,000

Capital expenditures

(4,555

)

(7,782

)

(12,152

)

(17,216

)

Capitalized software development costs

(7,170

)

(6,983

)

(21,931

)

(18,086

)

Capex

(11,725

)

(14,765

)

(34,083

)

(35,302

)

($55,000 - $50,000)

Free cash flow

$

188,070

$

173,770

$

541,098

$

430,578

$650,000 - $700,000

1We have not provided a line-item reconciliation for free cash flow to net cash from operating activities for this future period because we do not provide guidance on the individual

38

reconciling items between net cash from operating activities and free cash flow.

Reconciliation of Effective Tax Rate to Adjusted

Tax Rate (UNAUDITED)

Three Months Ended

Nine Months Ended

Sep. 30,

Sep. 30,

Sep. 30,

Sep. 30,

2020

2019

2020

2019

Effective tax rate

3.5%

18.8%

9.3%

3.5%

Tax Reform impact on effective tax rate

2.9%

-%

1.2%

-%

Multi-Year PSU impact on effective tax rate

-%

-%

-%

14.6%

Adjusted tax rate

6.4%

18.8%

10.5%

18.1%

39

Reconciliation of Operating Revenue Growth to Organic Operating Revenue Growth (UNAUDITED)

Comparison of the Three Months Ended September 30, 2020 and 2019

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

Index

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

7.7%

9.7%

4.5%

11.5%

Impact of acquisitions and divestitures

-%

-%

-%

-%

Impact of foreign currency exchange rate

fluctuations

(0.1%)

-%

-%

-%

Organic operating revenue growth

7.6%

9.7%

4.5%

11.5%

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

Analytics

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

3.8%

3.4%

-%

40.7%

Impact of acquisitions and divestitures

-%

-%

-%

-%

Impact of foreign currency exchange rate

fluctuations

-%

(0.1%)

-%

(0.2%)

Organic operating revenue growth

3.8%

3.3%

-%

40.5%

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

All Other

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

24.3%

24.4%

-%

18.4%

Impact of acquisitions and divestitures

(2.1%)

(1.4%)

-%

(35.2%)

Impact of foreign currency exchange rate

fluctuations

(3.6%)

(3.7%)

-%

(0.7%)

Organic operating revenue growth

18.6%

19.3%

-%

(17.5%)

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

Consolidated

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

7.9%

8.7%

4.5%

16.2%

Impact of acquisitions and divestitures

(0.2%)

(0.2%)

-%

(2.2%)

Impact of foreign currency exchange rate

fluctuations

(0.4%)

(0.4%)

-%

(0.1%)

Organic operating revenue growth

7.3%

8.1%

4.5%

13.9%

40

Reconciliation of Operating Revenue Growth to Organic Operating Revenue Growth (UNAUDITED)

Comparison of the Nine Months Ended September 30, 2020 and 2019

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

Index

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

10.3%

9.8%

8.7%

45.4%

Impact of acquisitions and divestitures

-%

-%

-%

-%

Impact of foreign currency exchange rate

fluctuations

-%

(0.1%)

-%

-%

Organic operating revenue growth

10.3%

9.7%

8.7%

45.4%

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

Analytics

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

3.4%

3.5%

-%

2.4%

Impact of acquisitions and divestitures

-%

-%

-%

-%

Impact of foreign currency exchange rate

fluctuations

-%

(0.1%)

-%

(0.3%)

Organic operating revenue growth

3.4%

3.4%

-%

2.1%

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

All Other

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

16.9%

16.5%

-%

37.8%

Impact of acquisitions and divestitures

(1.2%)

(0.9%)

-%

(16.6%)

Impact of foreign currency exchange rate

fluctuations

0.3%

0.3%

-%

0.6%

Organic operating revenue growth

16.0%

15.9%

-%

21.8%

Recurring

Non-Recurring

Total

Subscription

Asset-Based Fees

Revenues

Consolidated

Change Percentage

Change Percentage

Change Percentage

Change Percentage

Operating revenue growth

8.7%

7.9%

8.7%

36.8%

Impact of acquisitions and divestitures

(0.1%)

(0.1%)

-%

(1.4%)

Impact of foreign currency exchange rate

fluctuations

-%

-%

-%

(0.1%)

Organic operating revenue growth

8.6%

7.8%

8.7%

35.3%

41

Disclaimer

MSCI Inc. published this content on 27 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2020 14:39:09 UTC


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Sales 2020 1 693 M - -
Net income 2020 602 M - -
Net Debt 2020 2 080 M - -
P/E ratio 2020 57,6x
Yield 2020 0,71%
Capitalization 33 939 M 33 939 M -
EV / Sales 2020 21,3x
EV / Sales 2021 19,2x
Nbr of Employees 3 545
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NameTitle
Henry A. Fernandez Chairman & Chief Executive Officer
Carroll Douglas Baer Pettit President & Chief Operating Officer
Andrew C. Wiechmann Chief Financial & Strategy Officer
Jigar Thakkar Chief Technology Officer & Head-Engineering
Ben F. duPont Independent Director
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