The following discussion and analysis of the financial condition and results of our operations for the year endedDecember 31, 2020 should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The discussion summarizing the significant factors affecting the results of operations and financial condition ofMSCI for the year endedDecember 31, 2019 can be found in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 (the "2019 Annual Report"), which was filed with theSecurities and Exchange Commission onFebruary 18, 2020 .
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 research and ratings, as well as 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 ofDecember 31, 2020 , we had offices in more than 30 cities across more than 20 countries to help serve our diverse client base, with 46.9% of our revenues coming from clients in theAmericas , 37.0% inEurope , theMiddle East andAfrica ("EMEA") and 16.1% inAsia andAustralia . 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 client relationships and growing by developing new ones and (e) executing strategic relationships and acquisitions with complementary content and technology companies. 36 --------------------------------------------------------------------------------
Key Financial Metrics and Drivers
As discussed in the previous section, we utilize a portfolio of key financial metrics to manage the Company, including GAAP and non-GAAP measures. As detailed below, we review revenues by type and by segment, or by major product line. We also review expenses by activity, which provides more transparency into how resources are being deployed. In addition, we utilize operating metrics includingRun Rate , subscription sales and Retention Rate to analyze past performance and to provide insight into our latest reported recurring business. 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 are invested in securities denominated in currencies other than theU.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency-adjusted variances.
Revenues
Our revenues are characterized by type, which broadly reflects the nature of how they are recognized or earned. Our revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. We also group our revenues by segment and provide the revenue type within each segment. Recurring subscription revenues represent fees earned from clients primarily under renewable contracts and are generally recognized ratably over the term of the license or service pursuant to the contract terms. The fees are recognized as we provide the product and service to the client over the license period and are generally billed in advance, prior to the license start date. Asset-based fees represent fees earned on the AUM linked to our indexes from independent third-party sources or the most recently reported information provided by the client. Asset-based fees also include revenues related to futures and options contracts linked to our indexes, which are primarily based on trading volumes. Non-recurring revenues primarily represent fees earned on products and services where we do not have renewal contracts and primarily include revenues for providing historical data, certain implementation services and other special client requests, which are generally recognized at a point in time.
Operating Expenses
We group our operating expenses into the following activity categories:
• Cost of revenues; • Selling and marketing; • Research and development ("R&D"); • General and administrative ("G&A"); • Amortization of intangible assets; and
• Depreciation and amortization of property, equipment and leasehold
improvements.
Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.
37 --------------------------------------------------------------------------------
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, 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.
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.
Research and Development
R&D expenses consist of costs to develop new or enhance existing products and costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support associated with these efforts.
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.
Amortization of Intangible Assets
Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and internal capitalized software projects. Intangibles arising from past acquisitions consist of customer relationships, trademarks and trade names, technology and software, proprietary processes and data and non-competition agreements. We amortize definite-lived intangible assets over their estimated useful lives. Definite-lived intangible assets are tested for impairment when impairment indicators are present, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. We have no indefinite-lived intangible assets.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
This category 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.
Other Expense (Income), Net
This category consists primarily of interest we pay on our outstanding indebtedness, interest we collect on cash and short-term investments, foreign currency exchange rate gains and losses as well as other non-operating income and expense items, such as losses on early extinguishment of debt and income and losses associated with our equity method investment. 38 --------------------------------------------------------------------------------
Non-GAAP Financial Measures Adjusted EBITDA "Adjusted EBITDA," a non-GAAP measure used by management to assess operating performance, is defined as net income before (1) provision for income taxes, (2) other expense (income), net, (3) depreciation and amortization of property, equipment and leasehold improvements, (4) amortization of intangible assets and, at times, (5) certain other transactions or adjustments, including the impact related to the vesting of multi-year restricted stock units granted in 2016 to certain senior executives that are subject to the achievement of multi-year total shareholder return targets, which are performance targets with a market condition (the "2016 Multi-Year PSUs"). "Adjusted EBITDA expenses," a non-GAAP measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments, including the impact related to the vesting of the 2016 Multi-Year PSUs. Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be the Company's 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.
Run Rate is a key operating metric and is important because an increase or decrease in ourRun Rate ultimately impacts our operating revenues over time. At the end of any period, we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months. We measure the fees related to these agreements and refer to this as "Run Rate ." See "-Operating Metrics-Run Rate " below for additional information on the calculation of this metric.
Subscription Sales
Subscription sales is a key operating metric and is important because new
subscription sales increase our
Retention Rate
Another key operating metric is Retention Rate which is important because subscription cancellations decrease ourRun Rate and ultimately our operating revenues over time. See "-Operating Metrics-Retention Rate" below for additional information on the calculation of this metric.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We believe the estimates and judgments upon which we rely are reasonable based upon information available to us at the time these estimates and judgments are made. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. See Note 1, "Introduction And Basis Of Presentation-Significant Accounting Policies," and Note 2, "Recent Accounting Standards Updates," of the Notes to the Consolidated Financial Statements included herein for a listing of our accounting policies. 39 --------------------------------------------------------------------------------
Factors Affecting the Comparability of Results
Share Repurchases
The Board of Directors has approved a stock repurchase program for the purchase of the Company's common stock. See Note 10, "Shareholders' Equity (Deficit)," of the Notes to Consolidated Financial Statements included herein for additional information on our stock repurchase program. The weighted average shares outstanding used to calculate our diluted earnings per share for the year endedDecember 31, 2020 decreased by 1.2% compared to the year endedDecember 31, 2019 . The decrease primarily reflects the impact of share repurchases made pursuant to the stock repurchase program and the vesting of the restricted stock units that were included in the dilutive share count in the prior year. Senior Notes We have an aggregate$3,400.0 million of Senior Notes outstanding as ofDecember 31, 2020 . See "-Liquidity and Capital Resources-Senior Notes and Credit Agreement" below and Note 5, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements included herein for additional information on our Senior Notes and Revolving Credit Agreement.
Tax Cuts and Jobs Act of 2017
Tax Reform which was enacted onDecember 22, 2017 , significantly revised theU.S. corporate income tax by, among other things, loweringU.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time tax on deemed repatriation of historic earnings of foreign subsidiaries (the "Toll Charge"). Results of Operations
Year Ended
The following table presents the results of operations for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands, except per share data) Operating revenues$ 1,695,390 $ 1,557,796 $ 137,594 8.8 % Operating expenses: Cost of revenues 291,704 294,961 (3,257 ) (1.1 %) Selling and marketing 216,496 219,298 (2,802 ) (1.3 %) Research and development 101,053 98,334 2,719 2.8 % General and administrative 114,627 110,093 4,534 4.1 % Amortization of intangible assets 56,941 49,410 7,531 15.2 %
Depreciation and amortization of property,
equipment and leasehold improvements 29,805 29,999 (194 ) (0.6 %) Total operating expenses 810,626 802,095 8,531 1.1 % Operating income 884,764 755,701 129,063 17.1 % Other expense (income), net 198,539 152,383 46,156 30.3 % Income before provision for income taxes 686,225 603,318 82,907 13.7 % Provision for income taxes 84,403 39,670 44,733 112.8 % Net income$ 601,822 $ 563,648 $ 38,174 6.8 % Earnings per basic common share $ 7.19 $ 6.66$ 0.53 8.0 % Earnings per diluted common share $ 7.12 $ 6.59$ 0.53 8.0 % Operating margin 52.2 % 48.5 % 40
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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 lines or reportable segment as follows: Index, Analytics and All Other, which includes the ESG and Real Estate product lines.
The following table presents operating revenues by type for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Recurring subscriptions$ 1,248,175 $ 1,154,040 $ 94,135 8.2 % Asset-based fees 399,771 361,927 37,844 10.5 % Non-recurring 47,444 41,829 5,615 13.4 % Total operating revenues$ 1,695,390 $ 1,557,796 $ 137,594 8.8 % Total operating revenues grew 8.8% to$1,695.4 million for the year endedDecember 31, 2020 compared to$1,557.8 million for the year endedDecember 31, 2019 . Adjusting for the impact of foreign currency exchange rate fluctuations, total operating revenues would have increased 8.7% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Revenues from recurring subscriptions increased 8.2% to$1,248.2 million for the year endedDecember 31, 2020 compared to$1,154.0 million for the year endedDecember 31, 2019 , primarily driven by growth in Index products, which increased$49.4 million , or 9.3%, growth in ESG products, which increased$20.4 million , or 22.8%, and growth in Analytics products, which increased$20.0 million , or 4.1%. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions would have increased 8.1% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Revenues from asset-based fees increased 10.5% to$399.8 million for the year endedDecember 31, 2020 compared to$361.9 million for the year endedDecember 31, 2019 . The increase in asset-based fees was driven by growth in revenues from all of our indexed investment product categories, including an increase in revenues from exchange traded futures and options contracts linked toMSCI indexes that were primarily driven by price increases. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked toMSCI indexes, which was driven by price increases and an increase in average AUM. Revenues from ETFs linked toMSCI indexes also increased, driven by an 8.9% increase in average AUM in equity ETFs linked toMSCI indexes, partially offset by lower fees resulting from the impact of a change in product mix. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. The following table presents the value of AUM in equity ETFs linked toMSCI indexes and the sequential change of such assets as of the end of each of the periods indicated: Period Ended 2019 2020 (in billions) March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, AUM in equity ETFs linked toMSCI indexes(1), (2), (3)$ 802.2 $ 819.3 $ 815.0$ 934.4 $ 709.5 $ 825.4 $ 908.9$ 1,103.6 Sequential Change in Value Market Appreciation/(Depreciation)$ 78.3 $ 14.9 $ (9.2 )$ 63.5 $ (216.5 ) $ 117.4 $ 57.0$ 135.7 Cash Inflows 28.3 2.2 4.9 55.9 (8.4 ) (1.5 ) 26.5 59.0 Total Change$ 106.6 $ 17.1 $ (4.3 )$ 119.4 $ (224.9 ) $ 115.9 $ 83.5$ 194.7 41
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The following table presents the average value of AUM in equity ETFs linked to
Year-to-Date Average 2019 2020 March June September December March June September December AUM in equity ETFs linked to MSCI indexes(1), (2), (3)$ 766.0 $ 788.7 $ 796.1 $
814.4$ 877.1 $ 827.0 $ 849.1 $ 886.7
(1) The historical values of the AUM in equity ETFs linked to our indexes as of
the last day of the month and the monthly average balance can be found under
the link "AUM in equity ETFs Linked to
Relations homepage at http://ir.msci.com. This information is updated
mid-month each month. Information contained on our website is not
incorporated by reference into this Annual Report on Form 10-K or any other
report filed with theSEC . 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.
(2) The values for periods prior to
Bloomberg and
were based on data from Refinitiv and
reported on a delayed basis.
(3) The value of AUM in equity ETFs linked to
multiplying the equity ETF net asset value by the number of shares
outstanding.
For the year endedDecember 31, 2020 , the average value of AUM in equity ETFs linked toMSCI equity indexes was$886.7 billion , up$72.3 billion , or 8.9%, from$814.4 billion for the year endedDecember 31, 2019 . Non-recurring revenues increased 13.4% to$47.4 million for the year endedDecember 31, 2020 , compared to$41.8 million for the year endedDecember 31, 2019 , primarily driven by growth in Index products, which increased$8.3 million , or 29.6%, partially offset by a$3.1 million , or 29.5%, decrease in Analytics products.
The following table presents operating revenues by reportable segment and revenue type for the years indicated:
Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Operating revenues: Index Recurring subscriptions$ 580,393 $ 530,968 $ 49,425 9.3 % Asset-based fees 399,771 361,927 37,844 10.5 % Non-recurring 36,331 28,042 8,289 29.6 % Index total 1,016,495 920,937 95,558 10.4 % Analytics Recurring subscriptions 506,301 486,282 20,019 4.1 % Non-recurring 7,507 10,643 (3,136 ) (29.5 %) Analytics total 513,808 496,925 16,883 3.4 % All Other Recurring subscriptions 161,481 136,790 24,691 18.1 % Non-recurring 3,606 3,144 462 14.7 % All Other total 165,087 139,934 25,153 18.0 % Total operating revenues$ 1,695,390 $ 1,557,796 $ 137,594 8.8 %
Refer to the section titled, "Segment Results of Operations" for an explanation of the results.
Operating Expenses Total operating expenses increased 1.1% to$810.6 million for the year endedDecember 31, 2020 compared to$802.1 million for the year endedDecember 31, 2019 . Adjusting for the impact of foreign currency exchange rate fluctuations, total operating expenses would have increased 1.6% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . 42 -------------------------------------------------------------------------------- The following table presents operating expenses by activity for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Operating expenses: Cost of revenues$ 291,704 $ 294,961 $ (3,257 ) (1.1 %) Selling and marketing 216,496 219,298 (2,802 ) (1.3 %) Research and development 101,053 98,334 2,719 2.8 % General and administrative 114,627 110,093 4,534 4.1 % Amortization of intangible assets 56,941 49,410 7,531 15.2 %
Depreciation and amortization of property,
equipment and leasehold improvements 29,805 29,999 (194 ) (0.6 %) Total operating expenses$ 810,626 $ 802,095 $ 8,531 1.1 % Cost of Revenues Cost of revenues for the year endedDecember 31, 2020 decreased 1.1% to$291.7 million compared to$295.0 million for the year endedDecember 31, 2019 . The change was driven by the absence of$7.0 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized during the year endedDecember 31, 2019 , partially offset by increases in other compensation and benefits costs, primarily relating to higher wages and salaries, as well as higher non-compensation costs, reflecting higher information technology costs, partially offset by lower travel and entertainment costs. Cost of revenues reflects increases across the All Other and Index reportable segments, partially offset by a decrease in the Analytics reportable segment. Selling and Marketing Selling and marketing expenses for the year endedDecember 31, 2020 decreased 1.3% to$216.5 million compared to$219.3 million for the year endedDecember 31, 2019 . The change was driven by lower non-compensation costs, including travel and entertainment costs, and the absence of$4.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized during the year endedDecember 31, 2019 , partially offset by increases in compensation and benefits costs, primarily relating to higher wages and salaries. Selling and marketing expenses reflect increases across the All Other and Analytics reportable segments, partially offset by a decrease in the Index reportable segment. Research and Development R&D expenses for the year endedDecember 31, 2020 increased 2.8% to$101.1 million compared to$98.3 million for the year endedDecember 31, 2019 . The change was driven by increases in compensation and benefits costs, including wages and salaries and benefits costs. R&D expenses reflect higher investments in the All Other and Index reportable segments, partially offset by lower investment in the Analytics reportable segment.
General and Administrative
G&A expenses for the year endedDecember 31, 2020 increased 4.1% to$114.6 million compared to$110.1 million for the year endedDecember 31, 2019 . The change was driven by increases in compensation and benefits costs, primarily relating to higher incentive compensation and wages and salaries, partially offset by the absence of$3.5 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized during the year endedDecember 31, 2019 and lower non-compensation costs. G&A expenses reflect increases across all three reportable segments. 43 -------------------------------------------------------------------------------- The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Compensation and benefits$ 527,641 $ 518,730 $ 8,911 1.7 % Non-compensation expenses 196,239 203,956 (7,717 ) (3.8 %) Amortization of intangible assets 56,941 49,410 7,531 15.2 %
Depreciation and amortization of property,
equipment and leasehold improvements 29,805 29,999 (194 ) (0.6 %) Total operating expenses$ 810,626 $ 802,095 $ 8,531 1.1 % Compensation and benefits costs are our most significant expense and typically represent approximately 65% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 3,633 employees as ofDecember 31, 2020 compared to 3,396 employees as ofDecember 31, 2019 , reflecting a 7.0% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefits costs. As ofDecember 31, 2020 , 64.6% of our employees were located in emerging market centers compared to 62.9% as ofDecember 31, 2019 . Compensation and benefits costs for the year endedDecember 31, 2020 increased 1.7% to$527.6 million compared to$518.7 million for the year endedDecember 31, 2019 , driven by higher wages and salaries, incentive compensation and benefits costs, partially offset by the absence of$15.4 million of payroll tax expense associated with the vesting of the 2016 Multi-Year PSUs recognized during the year endedDecember 31, 2019 . Non-compensation expenses for the year endedDecember 31, 2020 decreased 3.8% to$196.2 million compared to$204.0 million for the year endedDecember 31, 2019 , primarily driven by lower travel and entertainment and marketing costs, partially offset by higher information technology costs.
Amortization of Intangible Assets
Amortization of intangible assets expense for the year endedDecember 31, 2020 increased 15.2% to$56.9 million compared to$49.4 million for the year endedDecember 31, 2019 , primarily driven by higher amortization of internally-developed capitalized software.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements
for the year ended
Other Expense (Income), Net
Other expense (income), net for the year endedDecember 31, 2020 increased 30.3% to$198.5 million compared to$152.4 million for the year endedDecember 31, 2019 . The increase in net expenses was primarily driven by the$35.0 million and$10.0 million loss on debt extinguishment associated with the redemption of all of the outstanding$800.0 million aggregate principal amount of the 2025 Senior Notes ("2025 Senior Notes Redemption") and the redemption of all of the remaining$300.0 million of the 2024 Senior Notes ("2024 Senior Notes Redemption"), respectively. The loss on debt extinguishment associated with the 2025 Senior Notes included an applicable premium of approximately$29.5 million (as defined in the indenture governing the terms of the 2025 Senior Notes) and the write-off of approximately$5.5 million of unamortized debt issuance costs. The loss on debt extinguishment associated with the 2024 Senior Notes Redemption included a redemption price of approximately$7.9 million (as set forth in the indenture governing the terms of the 2024 Senior Notes) and the write-off of approximately$2.1 million of unamortized debt issuance costs. In addition, the increase reflects higher interest expense associated with the higher outstanding debt and lower interest income due to lower rates earned on cash balances, offset by the absence of the$16.8 million loss on extinguishment associated with the partial pre-maturity redemption of the 2024 Senior Notes recognized during the year endedDecember 31, 2019 . 44 --------------------------------------------------------------------------------
Income Taxes
The provision for income tax is
The effective tax rate of 12.3% for the year endedDecember 31, 2020 reflects the impact of certain discrete items totaling$47.9 million . These discrete items primarily relate to$22.2 million of excess tax benefits recognized on the vesting of equity awards during the period and$20.8 million released during the year related to the favorable impact on prior years from final regulations clarifying certain provisions of Tax Reform. Also included in the discrete items is a$6.3 million benefit related to the revaluation of the cost of deemed repatriation of foreign earnings. The effective tax rate of 6.6% for the year endedDecember 31, 2019 reflects the impact of certain favorable discrete items totaling$85.7 million . These discrete items primarily relate to$66.6 million of excess tax benefits recognized upon vesting of the 2016 Multi-Year PSUs and$16.1 million of excess tax benefits on other share-based compensation recognized during the period. In addition, the effective tax rate was impacted by a beneficial geographic mix of earnings. Net Income
As a result of the factors described above, net income for the year ended
Adjusted EBITDA
The following table presents the calculation of the non-GAAP Adjusted EBITDA measure for the years indicated:
Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Operating revenues:$ 1,695,390 $ 1,557,796 $ 137,594 8.8 % Adjusted EBITDA expenses 723,880 707,297 16,583 2.3 % Adjusted EBITDA$ 971,510 $ 850,499 $ 121,011 14.2 % Adjusted EBITDA margin % 57.3 % 54.6 % Operating margin % 52.2 % 48.5 % Adjusted EBITDA increased 14.2% to$971.5 million for the year endedDecember 31, 2020 compared to$850.5 million for the year endedDecember 31, 2019 . Adjusted EBITDA margin increased to 57.3% for the year endedDecember 31, 2020 compared to 54.6% for the year endedDecember 31, 2019 . The increase in Adjusted EBITDA margin reflects a higher rate of growth in operating revenues as compared to the rate of growth of Adjusted EBITDA expenses. 45 --------------------------------------------------------------------------------
Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses
The following table presents the reconciliation of Adjusted EBITDA to net income for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Index Adjusted EBITDA$ 766,493 $ 670,188 $ 96,305 14.4 % Analytics Adjusted EBITDA 172,924 152,113 20,811 13.7 % All Other Adjusted EBITDA 32,093 28,198 3,895 13.8 % Consolidated Adjusted EBITDA 971,510 850,499 121,011 14.2 % 2016 Multi-Year PSUs grant payroll tax expense - 15,389 (15,389 ) (100.0 %) Amortization of intangible assets 56,941 49,410 7,531 15.2 % Depreciation and amortization of property, equipment and leasehold improvements 29,805 29,999 (194 ) (0.6 %) Operating income 884,764 755,701 129,063 17.1 % Other expense (income), net 198,539 152,383 46,156 30.3 % Provision for income taxes 84,403 39,670 44,733 112.8 % Net income$ 601,822 $ 563,648 $ 38,174 6.8 %
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the years indicated:
Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Index Adjusted EBITDA expenses$ 250,002 $ 250,749 $ (747 ) (0.3 %) Analytics Adjusted EBITDA expenses 340,884 344,812 (3,928 ) (1.1 %) All Other Adjusted EBITDA expenses 132,994 111,736 21,258 19.0 % Consolidated Adjusted EBITDA expenses 723,880 707,297 16,583 2.3 % 2016 Multi-Year PSUs grant payroll tax expense - 15,389 (15,389 ) (100.0 %) Amortization of intangible assets 56,941 49,410 7,531 15.2 % Depreciation and amortization of property, equipment and leasehold improvements 29,805 29,999 (194 ) (0.6 %) Total operating expenses$ 810,626 $ 802,095 $ 8,531 1.1 % 46
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Segment Results
The results for each of our three reportable segments for the years ended
Index Segment
The following table presents the results for the Index segment for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Operating revenues: Recurring subscriptions$ 580,393 $ 530,968 $ 49,425 9.3 % Asset-based fees 399,771 361,927 37,844 10.5 % Non-recurring 36,331 28,042 8,289 29.6 % Operating revenues total 1,016,495 920,937 95,558 10.4 % Adjusted EBITDA expenses 250,002 250,749 (747 ) (0.3 %) Adjusted EBITDA$ 766,493 $ 670,188 $ 96,305 14.4 % Adjusted EBITDA margin % 75.4 % 72.8 %
Revenues related to Index products increased 10.4% to
Revenues from recurring subscriptions were up 9.3% to$580.4 million for the year endedDecember 31, 2020 compared to$531.0 million for the year endedDecember 31, 2019 . The increase was primarily driven by growth in market cap-weighted index products, strong growth in factor, ESG and climate and in custom index products. The impact of foreign currency exchange rate fluctuations on revenues from recurring subscriptions was negligible. Revenues from asset-based fees increased 10.5% to$399.8 million for the year endedDecember 31, 2020 compared to$361.9 million for the year endedDecember 31, 2019 . The increase in asset-based fees was driven by growth in revenues from all of our indexed investment product categories, including an increase in revenues from exchange traded futures and options contracts linked toMSCI indexes that were primarily driven by price increases. The increase in revenues from asset-based fees was also driven by higher revenues from non-ETF indexed funds linked toMSCI indexes, which was driven by price increases and an increase in average AUM. Revenues from ETFs linked toMSCI indexes also increased, driven by an 8.9% increase in average AUM in equity ETFs linked toMSCI indexes, partially offset by a change in fee levels of certain products as well as change in product mix. The impact of foreign currency exchange rate fluctuations on revenues from asset-based fees was negligible. Index segment Adjusted EBITDA expenses decreased 0.3% to$250.0 million for the year endedDecember 31, 2020 compared to$250.7 million for the year endedDecember 31, 2019 , reflecting lower expenses across selling and marketing expense activity category, partially offset by higher expenses across the G&A, cost of revenues and R&D expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 0.2% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . 47
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Analytics Segment
The following table presents the results for the Analytics segment for the years indicated: Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Operating revenues: Recurring subscriptions$ 506,301 $ 486,282 $ 20,019 4.1 % Non-recurring 7,507 10,643 (3,136 ) (29.5 %) Operating revenues total 513,808 496,925 16,883 3.4 % Adjusted EBITDA expenses 340,884 344,812 (3,928 ) (1.1 %) Adjusted EBITDA$ 172,924 $ 152,113 $ 20,811 13.7 % Adjusted EBITDA margin % 33.7 % 30.6 % Analytics segment revenues increased 3.4% to$513.8 million for the year endedDecember 31, 2020 compared to$496.9 million for the year endedDecember 31, 2019 , primarily driven by growth in Multi-Asset Class Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment revenues would have increased 3.3% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Analytics segment Adjusted EBITDA expenses decreased 1.1% to$340.9 million for the year endedDecember 31, 2020 compared to$344.8 million for the year endedDecember 31, 2019 , primarily driven by lower expenses across the cost of revenues and R&D expense activity categories, partially offset by higher expenses across the selling and marketing and G&A expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have decreased 0.4% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 .
All Other Segment
The following table presents the results for the All Other segment, which consists of the ESG and Real Estate product lines, for the years indicated:
Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) Operating revenues: Recurring subscriptions$ 161,481 $ 136,790 $ 24,691 18.1 % Non-recurring 3,606 3,144 462 14.7 % Operating revenues total 165,087 139,934 25,153 18.0 % Adjusted EBITDA expenses 132,994 111,736 21,258 19.0 % Adjusted EBITDA$ 32,093 $ 28,198 $ 3,895 13.8 % Adjusted EBITDA margin % 19.4 % 20.2 % All Other segment revenues increased 18.0% to$165.1 million for the year endedDecember 31, 2020 compared to$139.9 million for the year endedDecember 31, 2019 . The increase in All Other revenues was driven by a$20.7 million , or 22.8%, increase in ESG revenues to$111.4 million and by a$4.5 million , or 9.0%, increase in Real Estate revenues to$53.7 million . The increase in ESG revenues was driven by strong growth in the Ratings, Climate and Screening products. The increase in Real Estate revenues was driven by growth in Enterprise Analytics and Global Intel products. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other operating revenues would have increased 17.7%, ESG revenues would have increased 22.3% and Real Estate revenues would have increased 9.2% for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . All Other segment Adjusted EBITDA expenses increased 19.0% to$133.0 million for the year endedDecember 31, 2020 compared to$111.7 million for the year endedDecember 31, 2019 , driven by higher expenses attributable mostly to ESG operations. Adjusting for the impact of foreign currency exchange rate fluctuations, 48 --------------------------------------------------------------------------------
Adjusted EBITDA expenses would have increased 19.3% for the year ended
Operating MetricsRun 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. 49
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The following table presents
As ofDecember 31 ,December 31, 2020
2019 Increase/(Decrease)
(in thousands) Index: Recurring subscriptions$ 618,391 $ 559,257 10.6 % Asset-based fees 464,108 396,140 17.2 % Index total 1,082,499 955,397 13.3 % Analytics 555,145 526,845 5.4 % All Other 194,816 152,247 28.0 % Total Run Rate$ 1,832,460 $ 1,634,489 12.1 % Recurring subscriptions total$ 1,368,352 $ 1,238,349 10.5 % Asset-based fees 464,108 396,140 17.2 % Total Run Rate$ 1,832,460 $ 1,634,489 12.1 % TotalRun Rate grew 12.1% to$1,832.5 million as ofDecember 31, 2020 compared to$1,634.5 million as ofDecember 31, 2019 . Recurring subscriptionRun Rate grew 10.5% to$1,368.4 million as ofDecember 31, 2020 compared to$1,238.3 million as ofDecember 31, 2019 . Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptionRun Rate would have increased 9.4% as ofDecember 31, 2020 compared toDecember 31, 2019 .Run Rate from asset-based fees increased 17.2% to$464.1 million as ofDecember 31, 2020 , from$396.1 million as ofDecember 31, 2019 , driven by higher AUM in equity ETFs linked toMSCI indexes, higher prices in futures and options and higher prices in non-ETF indexed funds linked toMSCI indexes. Partially offsetting the impact of the increase in AUM in equity ETFs linked toMSCI indexes was a change in fee levels of certain products as well as change in product mix, which was the primary driver of a decline in average basis point fees to 2.67 atDecember 31, 2020 from 2.82 atDecember 31, 2019 . As ofDecember 31, 2020 , the value of AUM in equity ETFs linked toMSCI indexes was$1,103.6 billion , up$169.2 billion , or 18.1%, from$934.4 billion as ofDecember 31, 2019 . The increase of$169.2 billion consisted of market appreciation of$93.6 billion and net inflows of$75.6 billion .
Index recurring subscription
Run Rate from Analytics products increased 5.4% to$555.1 million as ofDecember 31, 2020 compared to$526.8 million as ofDecember 31, 2019 , 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 4.0% as ofDecember 31, 2020 compared toDecember 31, 2019 .Run Rate from All Other products increased 28.0% to$194.8 million as ofDecember 31, 2020 compared to$152.2 million as ofDecember 31, 2019 . The$42.6 million increase was primarily driven by a$36.9 million , or 36.4%, increase in ESG Run Rate to$138.3 million , and a$5.7 million , or 11.2%, increase in Real EstateRun Rate to$56.5 million . The increase in ESG Run Rate was primarily driven by strong growth in Ratings and Climate products. The increase in Real EstateRun Rate was driven by growth in both Enterprise Analytics and Global Intel products. Adjusting for the impact of foreign currency exchange rate fluctuations, All OtherRun Rate would have increased 23.9%, ESG Run Rate would have increased 32.6% and Real EstateRun Rate would have increased 6.6% as ofDecember 31, 2020 compared toDecember 31, 2019 .
Sales
Sales represents the annualized value of products and services clients commit to
purchase from
50 -------------------------------------------------------------------------------- additional selling activities, such as new customer agreements, additions to existing agreements or increases in price that occurred during the period and are additions toRun Rate . Subscription cancellations reflect client activities during the period, such as discontinuing products and services and/or reductions in price, resulting in reductions toRun Rate . Net new recurring subscription sales represent the amount of new recurring subscription sales net of subscription cancellations during the period, which reflects the net impact toRun Rate during the period.
Total gross sales represent the sum of new recurring subscription sales and non-recurring sales. Total net sales represent the total gross sales net of the impact from subscription cancellations.
The following table presents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the years indicated:
Years Ended December 31, December 31, 2020 2019 Increase/(Decrease) (in thousands) New recurring subscription sales Index$ 85,411 $ 78,325 9.0 % Analytics 61,538 66,992 (8.1 %) All Other 46,907 32,552 44.1 % New recurring subscription sales total 193,856 177,869 9.0 % Subscription cancellations Index (27,398 ) (21,767 ) 25.9 % Analytics (40,003 ) (31,623 ) 26.5 % All Other (8,380 ) (6,468 ) 29.6 % Subscription cancellations total (75,781 ) (59,858 ) 26.6 % Net new recurring subscription sales Index 58,013 56,558 2.6 % Analytics 21,535 35,369 (39.1 %) All Other 38,527 26,084 47.7 % Net new recurring subscription sales total 118,075 118,011 0.1 % Non-recurring sales Index 41,463 30,262 37.0 % Analytics 10,996 15,947 (31.0 %) All Other 2,576 2,890 (10.9 %) Non-recurring sales total 55,035 49,099 12.1 % Gross sales Index$ 126,874 $ 108,587 16.8 % Analytics 72,534 82,939 (12.5 %) All Other 49,483 35,442 39.6 % Total gross sales$ 248,891 $ 226,968 9.7 % Net sales Index$ 99,476 $ 86,820 14.6 % Analytics 32,531 51,316 (36.6 %) All Other 41,103 28,974 41.9 % Total net sales$ 173,110 $ 167,110 3.6 % 51
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Retention Rate
Another key metric is our "Retention Rate." The following table presents our
Retention Rate by reportable segment and product category for the periods
indicated for the years ended
Index Analytics All Other Total 2020
Three Months Ended
95.0 % Three Months Ended June 30, 94.7 % 92.0 % 94.1 % 93.5 % Three Months Ended September 30, 95.0 % 93.8 % 95.1 % 94.5 % Three Months Ended December 31, 94.4 % 90.1 % 94.2 % 92.6 % Year Ended December 31, 95.1 % 92.4 % 94.5 % 93.9 % 2019 Three Months Ended March 31, 96.5 % 93.7 % 95.9 % 95.2 % Three Months Ended June 30, 97.1 % 94.2 % 93.9 % 95.5 % Three Months Ended September 30, 96.0 % 93.6 % 96.8 % 95.0 % Three Months Ended December 31, 93.0 % 92.8 % 92.7 % 92.9 % Year Ended December 31, 95.7 % 93.6 % 94.8 % 94.7 % Retention Rate is an important metric because subscription cancellations decrease ourRun Rate and ultimately our operating revenues over time. The annual Retention Rate represents the retained subscriptionRun Rate (subscriptionRun Rate at the beginning of the fiscal year less actual cancels during the year) as a percentage of the subscriptionRun Rate at the beginning of the fiscal year. The Retention Rate for a non-annual period is calculated by annualizing the cancellations for which we have received a notice of termination or for which we believe there is an intention not to renew during the non-annual period, and we believe that such notice or intention evidences the client's final decision to terminate or not renew the applicable agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscriptionRun Rate at the beginning of the fiscal year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the period. For example, in the fourth quarter of 2020, we recorded cancellations of$23.0 million . To derive the Retention Rate for the fourth quarter, we annualized the actual cancellations during the quarter of$23.0 million to derive$92.1 million of annualized cancellations. This$92.1 million was then divided by the$1,238.3 million subscriptionRun Rate at the beginning of the year to derive a cancellation rate of 7.4%. The 7.4% was then subtracted from 100.0% to derive a Retention Rate of 92.6% for the fourth quarter. 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 ourRun Rate attributable to assets in indexed investment products or futures and options contracts, in each case, linked to our indexes. For the year endedDecember 31, 2020 , 30.4% of our cancellations occurred in the fourth quarter. In our product lines, Retention Rate is generally higher during the first three quarters and lower in the fourth quarter, as the fourth quarter is traditionally the largest renewal period in the year. 52 --------------------------------------------------------------------------------
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 facilities. 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, 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.
Senior Notes and Credit Agreement
We have an aggregate of$3,400.0 million in senior unsecured notes (collectively, the "Senior Notes") outstanding and a$400.0 million undrawn Revolving Credit Agreement with a syndicate of banks as ofDecember 31, 2020 . See Note 5, "Commitments and Contingencies," of the Notes to Consolidated Financial Statements included herein for additional information on our Senior Notes and Revolving Credit Agreement. The Senior Notes and the Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly-owned domestic subsidiaries that account for more than 5% of our and our subsidiaries' consolidated assets, other than certain excluded subsidiaries (the "subsidiary guarantors"). Amounts due under the Revolving Credit Agreement are our and the subsidiary guarantors' senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt. The indentures governing our Senior Notes (the "Indentures") among us, each of the subsidiary guarantors, andWells Fargo Bank, National Association , as trustee, contain covenants that limit our and certain of our subsidiaries' ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries' ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis. The Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and the ability of our existing or future subsidiaries to:
• incur liens and further negative pledges;
• incur additional indebtedness or prepay, redeem or repurchase indebtedness;
• make loans or hold investments; • merge, dissolve, liquidate, consolidate with or into another person; • enter into acquisition transactions; • enter into sale/leaseback transactions; • issue disqualified capital stock; • sell, transfer or dispose of assets;
• pay dividends or make other distributions in respect of our capital stock
or engage in stock repurchases, redemptions and other restricted payments; • create new subsidiaries; • permit certain restrictions affecting our subsidiaries;
• change the nature of our business, accounting policies or fiscal periods;
53 --------------------------------------------------------------------------------
• enter into any transactions with affiliates other than on an arm's-length
basis; and
• amend our organizational documents or amend, modify or change the terms
of certain agreements relating to our indebtedness.
The Revolving Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business. The Revolving Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As ofDecember 31, 2020 , our Consolidated Leverage Ratio was 3.21:1.00 and our Consolidated Interest Coverage Ratio was 6.29:1.00. As ofDecember 31, 2020 , 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$989.3 million , or 58.4%, of our total revenue for the 12 months endedDecember 31, 2020 , approximately$351.7 million , or 39.8%, of our consolidated operating income for the 12 months endedDecember 31, 2020 , and approximately$1,065.4 million , or 25.3%, of our consolidated total assets (excluding intercompany assets) and$756.9 million , or 16.3%, of our consolidated total liabilities, in each case as ofDecember 31, 2020 . Share Repurchases The Board of Directors has approved a stock repurchase program for the purchase of the Company's common stock in the open market. See Note 10, "Shareholders' Equity (Deficit)," of the Notes to Consolidated Financial Statements included herein for additional information on our stock repurchase program. As ofFebruary 5, 2021 , a total of$1,728.8 million remained available on the share repurchase authorization. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice.
Cash Dividends
OnSeptember 17, 2014 , our Board of Directors approved a plan to initiate a regular quarterly cash dividend to our shareholders. OnOctober 30, 2014 , we began paying regular quarterly cash dividends and have paid such dividends each quarter thereafter. OnJanuary 25, 2021 , the Board of Directors declared a quarterly dividend of$0.78 per share of common stock to be paid onFebruary 26, 2021 to shareholders of record as of the close of trading onFebruary 19, 2021 .
Cash Flows
The following table presents the Company's cash and cash equivalents as of the dates indicated: As of December 31, December 31, 2020 2019 (in thousands) Cash and cash equivalents$ 1,300,521 $ 1,506,567 54
-------------------------------------------------------------------------------- The following table presents the breakdown of the Company's cash flows for the periods indicated: Years EndedDecember 31 ,December 31, 2020 2019 (in thousands)
Net cash provided by operating activities
(241,791 ) (71,937 ) Net cash used in financing activities (779,038 ) (36,667 ) Effect of exchange rate changes 3,674
1,472
Net (decrease) increase in cash$ (206,046 ) $ 602,391 Cash and Cash Equivalents Cash and cash equivalents were$1,300.5 million and$1,506.6 million as ofDecember 31, 2020 and 2019, respectively. We typically seek to maintain minimum cash balances globally of approximately$200.0 million to$250.0 million for general operating purposes but may maintain higher minimum cash balances while the COVID-19 pandemic continues to impact global economic markets. As ofDecember 31, 2020 and 2019,$423.4 million and$321.2 million , respectively, of the cash and cash equivalents were held by foreign subsidiaries. As a result of Tax Reform, we can now more efficiently access a significant portion of our cash held outside of theU.S. in the short-term without being subject toU.S. income taxes. Repatriation of some foreign cash may 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 purpose or other needs, including acquisitions or expansion of our products.
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$811.1 million and$709.5 million for the years endedDecember 31, 2020 and 2019, respectively. The year-over-year increase was primarily driven by higher cash collections from customers, partially offset by higher payments for income taxes, interest 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
Cash Flows From Financing Activities
Cash used in financing activities was$779.0 million for the year endedDecember 31, 2020 compared to$36.7 million for the year endedDecember 31, 2019 . The year-over-year change was primarily driven by higher share repurchases, the impact of the 2024 Senior Notes Redemption and the 2025 Senior Notes Redemption, partially offset by the impact of new senior notes offerings made during the periods. 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 12 months following issuance of this Form 10-K 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 12 months following issuance of this Form 10-K and for the foreseeable future thereafter. 55 --------------------------------------------------------------------------------
Contractual Obligations
Our contractual obligations consist primarily of our debt obligations arising from the issuance of the Senior Notes, leases for office space, leases for equipment and other operating leases and obligations to vendors arising out of market data contracts. The following table summarizes our contractual obligations for the periods indicated as ofDecember 31, 2020 : Years Ending December 31, (in thousands) Total 2021 2022 2023 2024 2025 Thereafter Senior Notes (1) 4,617,760 143,875 143,875 143,875 143,875 143,875 3,898,385 Operating leases 204,602 28,201 26,188 25,022 19,659 19,170 86,362 Vendor obligations 158,800 54,457 28,650 25,998 23,982 12,797 12,916 Other obligations (2) 19,391 - - - 1,465 7,967 9,959
Total contractual obligations
$ 194,895 $ 188,981 $ 183,809 $ 4,007,622
(1) Includes the impact of payments for the principal amount on the
million aggregate principal amount of 4.750% senior unsecured notes due 2026
(the "2026 Senior Notes"), the 2027 Senior Notes, the 2029 Senior Notes, the
2030 Senior Notes and the 2031 Senior Notes plus interest based on the
4.75%, 5.375%, 4.00%, 3.625% and 3.875% coupon interest rates, respectively.
(2) Primarily includes amounts payable related to the estimated Toll Charge. The
Toll Charge is included within "Other non-current liabilities" in our
Consolidated Statements of Financial Condition.
The obligations related to our uncertain tax positions, which are not considered material, have been excluded from the table above because of the uncertainty surrounding the timing and final amounts of any settlement.
Off-Balance Sheet Arrangements
AtDecember 31, 2020 and 2019, we did 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.
Recent Accounting Standards Updates
See Note 2, "Recent Accounting Standards Updates," of the Notes to the Consolidated Financial Statements included herein for further information.
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