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MSCI Inc. - Quarter Report: 2022 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission file number 001-33812
________________________________________
MSCI INC.
(Exact Name of Registrant as Specified in its Charter)
________________________________________
Delaware13-4038723
(State or other jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
7 World Trade Center
250 Greenwich Street, 49th Floor
New York, New York
10007
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (212) 804-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareMSCINew York Stock Exchange
________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
As of October 18, 2022, there were 79,958,166 shares of the registrant’s common stock, par value $0.01, outstanding.


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FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
Page
Item 5.47
Item 6.
48
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AVAILABLE INFORMATION
Our corporate headquarters is located at 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, New York, 10007, and our telephone number is (212) 804-3900. We maintain a website on the internet at www.msci.com. The contents of our website are not a part of or incorporated by reference in this Quarterly Report on Form 10-Q.
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website that contains reports, proxy and information statements and other information that we file electronically with the SEC at www.sec.gov. We also make available free of charge, on or through our website, these reports, proxy statements and other information as soon as reasonably practicable following the time they are electronically filed with or furnished to the SEC. To access these, click on the “SEC Filings” link found on our Investor Relations homepage (http://ir.msci.com).
We also use our Investor Relations homepage, Corporate Responsibility homepage and corporate Twitter account (@MSCI_Inc) as channels of distribution of Company information. The information we post through these channels may be deemed material.
Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about us when you enroll your email address by visiting the “Email Alert Subscription” section of our Investor Relations homepage at http://ir.msci.com/alerts.cfm. The contents of our website, including our Investor Relations homepage, Corporate Responsibility homepage and social media channels are not, however, a part of or incorporated by reference in this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
We have included in this Quarterly Report on Form 10-Q, and from time to time may make in our public filings, press releases or other public statements, certain statements that constitute forward-looking statements. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only MSCI’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.
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. Statements concerning our financial position, business strategy and plans or objectives for future operations are forward-looking statements. 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 our control and that could materially affect our actual results, levels of activity, performance or achievements. Such risks and uncertainties include those set forth under “Risk Factors” in Part I, Item 1A of the 2021 Annual Report on Form 10-K filed with the SEC on February 11, 2022. Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. The forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or for any other reason. Therefore, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the SEC.
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PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except per share and share data)
As of
September 30,December 31,
20222021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$867,112 $1,421,449 
Accounts receivable, net of allowances525,360 664,511 
Prepaid income taxes82,678 5,951 
Prepaid and other assets51,758 51,499 
Total current assets1,526,908 2,143,410 
Property, equipment and leasehold improvements, net 54,341 66,715 
Right of use assets 131,772 144,584 
Goodwill2,226,141 2,236,386 
Intangible assets, net 565,582 593,341 
Equity method investment215,370 218,763 
Deferred tax assets27,939 40,119 
Other non-current assets29,474 63,385 
Total assets$4,777,527 $5,506,703 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$5,303 $13,448 
Income taxes payable3,770 59,635 
Accrued compensation and related benefits142,282 207,640 
Current portion of long-term debt8,711 — 
Other accrued liabilities171,476 145,302 
Deferred revenue735,710 824,912 
Total current liabilities1,067,252 1,250,937 
Long-term debt4,504,291 4,161,422 
Long-term operating lease liabilities137,265 150,029 
Deferred tax liabilities47,142 3,650 
Other non-current liabilities98,968 104,132 
Total liabilities5,854,918 5,670,170 
Commitments and Contingencies (see Note 8)
Shareholders’ equity (deficit):
Preferred stock (par value $0.01, 100,000,000 shares authorized; no shares issued)
— — 
Common stock (par value $0.01; 750,000,000 common shares authorized; 133,620,870
   and 133,162,178 common shares issued and 80,121,138 and 82,439,449 common
   shares outstanding at September 30, 2022 and December 31, 2021, respectively)
1,336 1,332 
Treasury shares, at cost (53,499,732 and 50,722,729 common shares held at September 30, 2022 and December 31, 2021, respectively)
(5,867,881)(4,540,144)
Additional paid in capital1,504,274 1,457,623 
Retained earnings3,358,892 2,976,517 
Accumulated other comprehensive loss(74,012)(58,795)
Total shareholders’ equity (deficit)(1,077,391)(163,467)
Total liabilities and shareholders’ equity (deficit)$4,777,527 $5,506,703 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(unaudited)
Operating revenues$560,639 $517,099 $1,672,390 $1,493,702 
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)98,418 89,674 301,957 262,781 
Selling and marketing65,545 59,819 192,671 174,477 
Research and development25,941 28,352 78,179 80,745 
General and administrative30,702 38,110 112,993 103,020 
Amortization of intangible assets23,375 14,105 67,274 59,569 
Depreciation and amortization of property, equipment and
   leasehold improvements
7,127 6,809 20,426 20,972 
Total operating expenses251,108 236,869 773,500 701,564 
Operating income309,531 280,230 898,890 792,138 
Interest income(3,938)(396)(5,160)(1,129)
Interest expense44,162 42,137 125,961 119,278 
Other expense (income)103 37,839 (90)61,616 
Other expense (income), net40,327 79,580 120,711 179,765 
Income before provision for income taxes269,204 200,650 778,179 612,373 
Provision for income taxes52,612 30,774 122,577 80,255 
Net income$216,592 $169,876 $655,602 $532,118 
Earnings per share:
Basic$2.69 $2.06 $8.09 $6.45 
Diluted$2.68 $2.03 $8.05 $6.38 
Weighted average shares outstanding:
Basic80,50082,47081,00182,521
Diluted80,87483,55481,48183,446
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(unaudited)
Net income$216,592 $169,876 $655,602 $532,118 
Other comprehensive (loss) income:
Foreign currency translation adjustments(10,978)(3,226)(25,724)(4,052)
Income tax effect1,453 422 3,921 999 
Foreign currency translation adjustments, net(9,525)(2,804)(21,803)(3,053)
Pension and other post-retirement adjustments293 186 7,779 383 
Income tax effect(79)(48)(1,193)(146)
Pension and other post-retirement adjustments, net214 138 6,586 237 
Other comprehensive (loss) income, net of tax(9,311)(2,666)(15,217)(2,816)
Comprehensive income$207,281 $167,210 $640,385 $529,302 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(in thousands)
Common
Stock
Treasury
Stock
Additional
Paid in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
(unaudited)
Balance at December 31, 2021
$1,332 $(4,540,144)$1,457,623 $2,976,517 $(58,795)$(163,467)
Net income228,423 228,423 
Dividends declared ($1.04 per common share)
(87,280)(87,280)
Dividends paid in shares77 77 
Other comprehensive income (loss), net of tax(2,022)(2,022)
Common stock issued
Shares withheld for tax withholding and exercises(105,000)(105,000)
Compensation payable in common stock22,754 22,754 
Common stock repurchased and held in treasury(772,657)(772,657)
Common stock issued to Directors and
   (held in)/released from treasury
(21)(21)
Balance at March 31, 2022
1,336 (5,417,822)1,480,454 3,117,660 (60,817)(879,189)
Net income210,587 210,587 
Dividends declared ($1.04 per common share)
(84,593)(84,593)
Dividends paid in shares22 22 
Other comprehensive income (loss), net of tax(3,884)(3,884)
Common stock issued— 
Shares withheld for tax withholding and exercises(3,862)(3,862)
Compensation payable in common stock11,858 11,858 
Common stock repurchased and held in treasury(276,994)(276,994)
Common stock issued to Directors and
   (held in)/released from treasury
(391)(391)
Balance at June 30, 2022
1,336 (5,699,069)1,492,334 3,243,654 (64,701)(1,026,446)
Net income216,592 216,592 
Dividends declared ($1.25 per common share)
(101,354)(101,354)
Dividends paid in shares27 27 
Other comprehensive income (loss), net of tax(9,311)(9,311)
Common stock issued— 
Shares withheld for tax withholding and exercises(3,741)(3,741)
Compensation payable in common stock11,913 11,913 
Common stock repurchased and held in treasury(165,044)(165,044)
Common stock issued to Directors and
   (held in)/released from treasury
(27)(27)
Balance at September 30, 2022
$1,336 $(5,867,881)$1,504,274 $3,358,892 $(74,012)$(1,077,391)
See Notes to Condensed Consolidated Financial Statements (Unaudited)





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MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(in thousands)
Common
Stock
Treasury
Stock
Additional
Paid in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
(unaudited)
Balance at December 31, 2020
$1,328 $(4,342,535)$1,402,537 $2,554,295 $(58,859)$(443,234)
Net income196,819 196,819 
Dividends declared ($0.78 per common share)
(65,947)(65,947)
Dividends paid in shares66 66 
Other comprehensive income (loss), net of tax(957)(957)
Common stock issued
Shares withheld for tax withholding and exercises(52,814)(52,814)
Compensation payable in common stock18,842 18,842 
Common stock repurchased and held in treasury(134,340)(134,340)
Common stock issued to Directors and
   (held in)/released from treasury
(20)(20)
Balance at March 31, 2021
1,331 (4,529,709)1,421,445 2,685,167 (59,816)(481,582)
Net income165,423 165,423 
Dividends declared ($0.78 per common share)
(64,863)(64,863)
Dividends paid in shares20 20 
Other comprehensive income (loss), net of tax807 807 
Common stock issued— 
Shares withheld for tax withholding and exercises(620)(620)
Compensation payable in common stock12,252 12,252 
Common stock repurchased and held in treasury— 
Common stock issued to Directors and
   (held in)/released from treasury
756 756 
Balance at June 30, 2021
1,331 (4,529,573)1,433,717 2,785,727 (59,009)(367,807)
Net income169,876 169,876 
Dividends declared ($1.04 per common share)
(86,476)(86,476)
Dividends paid in shares21 21 
Other comprehensive income (loss), net of tax(2,666)(2,666)
Common stock issued
Shares withheld for tax withholding and exercises(5,286)(5,286)
Compensation payable in common stock12,263 12,263 
Common stock repurchased and held in treasury— 
Common stock issued to Directors and
   (held in)/released from treasury
49 49 
Balance at September 30, 2021
$1,332 $(4,534,810)$1,446,001 $2,869,127 $(61,675)$(280,025)
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
20222021
(unaudited)
Cash flows from operating activities
Net income$655,602 $532,118 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets67,274 59,569 
Stock-based compensation expense46,432 43,218 
Depreciation and amortization of property, equipment and leasehold improvements20,426 20,972 
Amortization of right of use assets18,555 18,255 
Loss on impairment of right of use assets, net705 — 
Amortization of debt origination fees3,868 3,658 
Loss on extinguishment of debt— 59,103 
Deferred taxes59,324 (101,840)
Other adjustments(3,654)5,706 
Changes in assets and liabilities:
Accounts receivable127,043 69,324 
Prepaid income taxes(77,908)4,165 
Prepaid and other assets(1,678)(2,178)
Other non-current assets32,547 332 
Accounts payable(8,144)(6,347)
Accrued compensation and related benefits(58,042)(206)
Income taxes payable(52,939)11,981 
Other accrued liabilities31,297 7,201 
Deferred revenue(66,982)(57,932)
Long-term operating lease liabilities(19,492)(15,644)
Other non-current liabilities6,105 5,763 
Other(397)(813)
Net cash provided by operating activities779,942 656,405 
Cash flows from investing activities  
Capitalized software development costs(44,425)(29,078)
Capital expenditures(8,012)(7,119)
Acquisition of a business, net of cash acquired— (948,695)
Acquisition of equity method investment(5)(77)
Other29 (910)
Net cash used in investing activities(52,413)(985,879)
Cash flows from financing activities
Proceeds from borrowings, inclusive of premium355,000 1,803,750 
Repayment of borrowings(5,000)(1,051,810)
Repurchase of common stock held in treasury(1,327,298)(193,060)
Payment of dividends(272,759)(216,496)
Payment of debt issuance costs in connection with debt(2,559)(21,135)
Payment of contingent consideration(211)— 
Net cash (used in) provided by financing activities(1,252,827)321,249 
Effect of exchange rate changes(29,039)(7,632)
Net (decrease) increase in cash(554,337)(15,857)
Cash and cash equivalent, beginning of period1,421,449 1,300,521 
Cash and cash equivalent, end of period$867,112 $1,284,664 
Supplemental disclosure of cash flow information:
Cash paid for interest$107,162 $101,631 
Cash paid for income taxes, net of refunds received$154,725 $163,732 
Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements in other accrued liabilities$1,926 $4,821 
Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid$3,270 $2,096 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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MSCI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTRODUCTION AND BASIS OF PRESENTATION
MSCI Inc., together with its wholly owned subsidiaries (the “Company” or “MSCI”) is a leading provider of critical decision support tools and solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. Our products and services include indexes; portfolio construction and risk management tools; environmental, social and governance (“ESG”) and climate solutions; and real estate market and transaction data and analysis.
Basis of Presentation and Use of Estimates
These unaudited condensed consolidated financial statements include the accounts of MSCI and its wholly owned subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of September 30, 2022 and December 31, 2021, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2021 have been derived from the 2021 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for interim periods are not necessarily indicative of results for the entire year.
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The Company makes certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of operating revenues and expenses during the periods presented. Significant estimates and judgments made by management include such examples as assessment of impairment of goodwill and intangible assets and income taxes. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Inter-company balances and transactions are eliminated in consolidation.
Concentrations
For the nine months ended September 30, 2022 and 2021, BlackRock, Inc. (“BlackRock”) accounted for 10.5% and 12.9% of the Company’s consolidated operating revenues, respectively. For the nine months ended September 30, 2022 and 2021, BlackRock accounted for 17.7% and 20.6% of the Index segment’s operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics, ESG and Climate or All Other – Private Assets segments for the nine months ended September 30, 2022 and 2021.
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts from December 31, 2020 to September 30, 2022 were as follows:
Amount
(in thousands)
Balance as of December 31, 2020$1,583 
Addition (reduction) to credit loss expense1,210 
Write-offs, net of recoveries(456)
Balance as of December 31, 2021$2,337 
Addition (reduction) to credit loss expense855 
Adjustments and write-offs, net of recoveries(569)
Balance as of September 30, 2022$2,623 
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2. RECENT ACCOUNTING STANDARDS UPDATES
There are no pending accounting standards updates that are currently expected to have a material impact on the Company.
3. REVENUE RECOGNITION
MSCI’s operating revenues are reported by product type, which generally reflects the timing of recognition. The Company’s operating revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. The Company also disaggregates operating revenues by segment.
The tables that follow present the disaggregated operating revenues for the periods indicated:
For the Three Months Ended September 30, 2022
Segments
(in thousands)IndexAnalyticsESG and ClimateAll Other - Private AssetsTotal
Operating Revenue Types
Recurring subscriptions$185,531 $142,751 $56,353 $35,581 $420,216 
Asset-based fees125,620 — — — 125,620 
Non-recurring11,089 2,164 1,242 308 14,803 
Total$322,240 $144,915 $57,595 $35,889 $560,639 
For the Nine Months Ended September 30, 2022
Segments
(in thousands)IndexAnalyticsESG and ClimateAll Other - Private AssetsTotal
Operating Revenue Types
Recurring subscriptions$539,740 $420,047 $160,962 $106,276 $1,227,025 
Asset-based fees402,889 — — — 402,889 
Non-recurring31,319 6,349 3,790 1,018 42,476 
Total$973,948 $426,396 $164,752 $107,294 $1,672,390 
For the Three Months Ended September 30, 2021
Segments
(in thousands)IndexAnalyticsESG and ClimateAll Other - Private AssetsTotal
Operating Revenue Types
Recurring subscriptions$165,310 $134,320 $42,592 $15,418 $357,640 
Asset-based fees141,745 — — — 141,745 
Non-recurring14,448 1,978 1,099 189 17,714 
Total$321,503 $136,298 $43,691 $15,607 $517,099 
For the Nine Months Ended September 30, 2021
Segments
(in thousands)IndexAnalyticsESG and ClimateAll Other - Private AssetsTotal
Operating Revenue Types
Recurring subscriptions$480,488 $399,360 $115,299 $48,355 $1,043,502 
Asset-based fees404,593 — — — 404,593 
Non-recurring34,876 6,857 2,450 1,424 45,607 
Total$919,957 $406,217 $117,749 $49,779 $1,493,702 
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The tables that follow present the change in accounts receivable, net of allowances, and current deferred revenue between the dates indicated:
Accounts receivable, net Deferred revenue
(in thousands)
Opening (December 31, 2021)
$664,511 $824,912 
Closing (September 30, 2022)
525,360 735,710 
Increase/(decrease)$(139,151)$(89,202)
Accounts receivable, netDeferred revenue
(in thousands)
Opening (December 31, 2020)
$558,569 $675,870 
Closing (September 30, 2021)
496,726 643,352 
Increase/(decrease)$(61,843)$(32,518)
The amounts of revenue recognized in the periods that were included in the opening current deferred revenue, which reflects contract liability amounts, were $149.4 million and $722.0 million for the three and nine months ended September 30, 2022, respectively and $145.2 million and $623.8 million for the three and nine months ended September 30, 2021, respectively. The difference between the opening and closing balances of the Company’s deferred revenue is primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. As of September 30, 2022 and December 31, 2021, the Company carried a long-term deferred revenue balance of $27.7 million and $23.4 million, respectively, in “Other non-current liabilities” on the Unaudited Condensed Consolidated Statement of Financial Condition.
For contracts that have a duration of one year or less, the Company has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:
As of
September 30,
2022
(in thousands)
First 12-month period$572,644 
Second 12-month period332,957 
Third 12-month period138,779 
Periods thereafter84,390 
Total$1,128,770 
4. EARNINGS PER COMMON SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the assumed conversion of all dilutive securities, including, when applicable, restricted stock units (“RSUs”), performance stock units (“PSUs”) and performance stock options (“PSOs”).
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The following table presents the computation of basic and diluted EPS:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(in thousands, except per share data)
Net income$216,592 $169,876 $655,602 $532,118 
Basic weighted average common shares outstanding80,500 82,470 81,001 82,521 
Effect of dilutive securities:
PSUs, RSUs and PSOs374 1,084 480 925 
Diluted weighted average common shares outstanding80,874 83,554 81,481 83,446 
Earnings per common share:
Basic$2.69 $2.06 $8.09 $6.45 
Diluted$2.68 $2.03 $8.05 $6.38 
5. ACQUISITIONS
On September 13, 2021, MSCI acquired all of the issued and outstanding preferred and common shares of Real Capital Analytics, Inc (“RCA”) for an aggregate cash purchase price of $949.0 million. This acquisition expands MSCI’s suite of real estate solutions, providing the real estate industry with data, analytics and support tools to manage investments and understand performance and risk, including climate risk, within their portfolios. RCA has been accounted for as a business combination using the acquisition method of accounting and has been integrated into the All Other – Private Assets reportable segment, as a component of the Real Assets operating segment. A portion of RCA’s client agreements do not have automatic renewal clauses at the end of the subscription period. Due to the historically high retention rate and expectation that a substantial portion of the client agreements will be renewed, the associated revenue is recorded as recurring subscription revenue.
The table below represents the final purchase price allocation to total assets acquired and liabilities assumed based on their respective estimated fair values as of September 13, 2021 and the associated estimated useful lives at that date. In the fourth quarter of 2021, the Company early adopted ASU 2021-08, which resulted in an increase to deferred revenue and goodwill and a decrease in deferred tax liabilities recorded as of the opening balance sheet date.
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Estimated
Useful Life
Fair Value
(in thousands)
Accounts receivable$9,700 
Other current assets3,721 
Property, equipment and leasehold improvements, net1,204 
Right of use assets6,441 
Other non-current assets3,398 
Deferred revenue(35,194)
Other current liabilities(15,525)
Long-term operating lease liabilities(4,849)
Deferred tax liabilities(83,737)
Other non-current liabilities(223)
Intangible assets:
Proprietary data11 years185,500 
Customer relationships20 years175,800 
Acquired technology and software9 years31,500 
Trademarks2 years890 
Goodwill670,333 
Purchase price, net of cash acquired$948,959 
The recorded goodwill is primarily attributable to the utilization of the acquired data as well as expanded market opportunities. Goodwill attributable to the acquisition is not deductible for income tax purposes.
Revenue of RCA recognized within the condensed consolidated financial statements was $21.3 million and $59.8 million for the three and nine months ended September 30, 2022, respectively.
6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net consisted of the following as of the dates indicated:
As of
September 30,December 31,
20222021
(in thousands)
Computer & related equipment$178,523 $179,557 
Furniture & fixtures13,451 14,194 
Leasehold improvements54,183 56,308 
Work-in-process2,105 2,699 
Subtotal248,262 252,758 
Accumulated depreciation and amortization(193,921)(186,043)
Property, equipment and leasehold improvements, net$54,341 $66,715 
Depreciation and amortization expense of property, equipment and leasehold improvements was $7.1 million and $6.8 million for the three months ended September 30, 2022 and 2021, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $20.4 million and $21.0 million for the nine months ended September 30, 2022 and 2021, respectively.
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7. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The following table presents goodwill by reportable segment:
(in thousands)IndexAnalyticsESG and ClimateAll Other - Private AssetsTotal
Goodwill at December 31, 2021$1,205,443 $290,976 $48,047 $691,920 $2,236,386 
Acquisitions (1)
— — — (541)(541)
Foreign exchange translation adjustment(6,003)— — (3,701)(9,704)
Goodwill at September 30, 2022$1,199,440 $290,976 $48,047 $687,678 $2,226,141 
___________________________
(1)Reflects the impact of measurement period adjustments associated with the acquisition of RCA.

The Company completed its annual goodwill impairment test as of July 1, 2022 on its Index, Analytics, ESG and Climate, and Real Assets reporting units, which are also the Company’s operating segments, and no impairments were noted. The Company determined that it was not more likely than not that the fair value of its reporting units is less than their respective carrying values. See Note 12, “Segment Information,” for further descriptions of the operating segments.
Intangible Assets, Net
The following table presents the amount of amortization expense related to intangible assets by category for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Amortization expense of acquired intangible assets$15,810 $9,602 $47,562 $26,346 
Amortization expense of internally developed capitalized software7,565 4,503 19,712 17,210 
Write-off of internally developed capitalized software— — — 16,013 
Total amortization of intangible assets expense$23,375 $14,105 $67,274 $59,569 
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The gross carrying and accumulated amortization amounts related to the Company’s intangible assets were as follows:
As of
September 30,December 31,
20222021
(in thousands)
Gross intangible assets:
Customer relationships$532,500 $532,400 
Proprietary data220,778 220,639 
Acquired technology and software209,220 209,220 
Trademarks208,190 208,190 
Internally developed capitalized software150,480 106,181 
Subtotal1,321,168 1,276,630 
Foreign exchange translation adjustment(16,875)(5,782)
Total gross intangible assets$1,304,293 $1,270,848 
Accumulated amortization:
Customer relationships$(300,800)$(277,865)
Proprietary data(37,034)(22,678)
Acquired technology and software(178,805)(175,718)
Trademarks(159,650)(152,468)
Internally developed capitalized software(69,214)(49,394)
Subtotal(745,503)(678,123)
Foreign exchange translation adjustment6,791 616 
Total accumulated amortization$(738,712)$(677,507)
Net intangible assets:
Customer relationships$231,700 $254,535 
Proprietary data183,744 197,961 
Acquired technology and software30,415 33,502 
Trademarks48,540 55,722 
Internally developed capitalized software81,266 56,787 
Subtotal575,665 598,507 
Foreign exchange translation adjustment(10,083)(5,166)
Total net intangible assets$565,582 $593,341 
The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2022 and succeeding years:    
Years Ending December 31,Amortization
Expense
(in thousands)
Remainder of 2022$24,562 
202394,309 
202487,153 
202560,949 
202637,318 
Thereafter261,291 
Total$565,582 
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8. COMMITMENTS AND CONTINGENCIES
As of September 30, 2022, the Company had outstanding an aggregate of $4,200.0 million in senior unsecured notes (collectively, the “Senior Notes”) and an aggregate of $350.0 million in senior unsecured tranche A term loans (the “Tranche A Term Loans”) under the term loan A facility (the “TLA Facility”), as presented in the table below:
Principal
Amount
Outstanding at
Carrying
Value at
Carrying
Value at
Fair
Value at
Fair
Value at
Maturity DateSeptember 30, 2022September 30, 2022December 31, 2021September 30, 2022December 31, 2021
(in thousands)
Debt
4.000% senior unsecured notes due 2029
November 15, 2029
1,000,000 992,273 991,455 864,190 1,047,950 
3.625% senior unsecured notes due 2030
September 1, 2030
900,000 894,760 894,263 753,471 924,777 
3.875% senior unsecured notes due 2031
February 15, 2031
1,000,000 990,793 989,973 842,510 1,046,620 
3.625% senior unsecured notes due 2031
November 1, 2031
600,000 594,031 593,538 483,858 625,536 
3.250% senior unsecured notes due 2033
August 15, 2033
700,000 692,695 692,193 540,778 710,906 
Variable rate Tranche A Term Loans due 2027
February 16, 2027
350,000 348,450 — 348,250 — 
Total debt$4,550,000 $4,513,002 $4,161,422 $3,833,057 $4,355,789 
Interest payments attributable to the Company’s outstanding indebtedness are due as presented in the following table:
Interest payment frequencyFirst interest
payment date
Senior Notes and Tranche A Term Loans
4.000% senior unsecured notes due 2029
Semi-AnnualMay 15
3.625% senior unsecured notes due 2030
Semi-AnnualMarch 1
3.875% senior unsecured notes due 2031
Semi-AnnualJune 1
3.625% senior unsecured notes due 2031
Semi-AnnualMay 1
3.250% senior unsecured notes due 2033
Semi-AnnualFebruary 15
Variable rate Tranche A Term Loans due 20271
QuarterlyOctober 15
___________________________
(1)The first payment occurred on October 15, 2022.
The fair market value of the Company’s debt obligations represent Level 2 valuations. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values.
Credit Agreement. Since November 20, 2014, the Company has maintained a revolving credit agreement with a syndicate of banks. On June 9, 2022, the Company, the guarantors party thereto and the lenders and agents party thereto, entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), amending and restating in its entirety the Company’s prior revolving credit agreement (the “Prior Revolving Credit Agreement”). The Credit Agreement makes available to the Company an aggregate of $500.0 million of revolving loan commitments, which may be drawn until February 16, 2027, and the TLA Facility. At September 30, 2022, the revolving loan commitments were undrawn. As noted above, at September 30, 2022, the commitments under the TLA Facility were drawn in full, and the resulting Tranche A Term Loans mature on February 16, 2027. The obligations under the Credit Agreement are general unsecured obligations of the Company and the guarantors.
Interest on the Tranche A Term Loans under the TLA Facility accrues, at a variable rate, based on the secured overnight funding rate (“SOFR”) or the alternate base rate (“Base Rate”), plus, in each case, an applicable margin and will be due on each Interest Payment Date (as defined in the Credit Agreement). The applicable margin is calculated by reference to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) and ranges between 1.50% to 2.00% for SOFR loans, and 0.50% to 1.00% for Base Rate loans. At September 30, 2022, the interest rate on the TLA Facility was 4.29%.
In connection with the closings of the Senior Notes offerings, entry into the Prior Revolving Credit Agreement and the subsequent amendments thereto and entry into the Credit Agreement, the Company paid certain financing fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At September 30, 2022, $39.3 million of the deferred financing fees and premium remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.8 million of which is included in “Other non-current assets” and $37.0 million of which is included in “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.
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9. LEASES
The Company recognized $7.3 million and $7.6 million of operating lease expenses for the three months ended September 30, 2022 and 2021, respectively. The Company recognized $22.4 million and $22.7 million of operating lease expenses for the nine months ended September 30, 2022 and 2021, respectively. The amounts associated with variable lease costs, short-term lease costs and sublease income were not material for any of the three and nine months ended September 30, 2022 and 2021.
Maturities of the Company’s operating lease liabilities as of September 30, 2022 are as follows:
Maturity of Lease LiabilitiesOperating
(in thousands)Leases
Remainder of 2022$5,395 
202328,346 
202423,457 
202522,273 
202620,736 
Thereafter82,118 
Total lease payments$182,325 
Less: Interest(22,924)
Present value of lease liabilities$159,401 
Other accrued liabilities$22,136 
Long-term operating lease liabilities$137,265 
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
As of
September 30,December 31,
Lease Term and Discount Rate20222021
Weighted-average remaining lease term (years)8.088.16
Weighted-average discount rate3.15 %3.09 %
Other information related to the Company’s operating leases are as follows:
Other InformationNine Months Ended
September 30,
(in thousands)20222021
Operating cash flows used for operating leases$22,025 $23,038 
Right of use assets obtained in exchange for new
    operating lease liabilities
$14,929 $20,109 
10. SHAREHOLDERS’ EQUITY (DEFICIT)
Return of capital
On July 28, 2022, the Board of Directors authorized a stock repurchase program (the “2022 Repurchase Program”) for the purchase of up to $1,000.0 million worth of shares of MSCI’s common stock in addition to the $539.1 million of authorization then remaining under a previously existing share repurchase program that was replaced by, and incorporated into, the 2022 Repurchase Program for a total of $1,539.1 million of stock repurchase authorization available under the 2022 Repurchase Program.
Share repurchases made pursuant to the 2022 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice. As of September 30, 2022, there was $1,374.5 million of available authorization remaining under the 2022 Repurchase Program.
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The following table provides information with respect to repurchases of the Company’s common stock made on the open market:
Nine Months EndedAverage
Price
Paid Per
Share
Total
Number of
Shares
Repurchased
Dollar
Value of
Shares
Repurchased
(in thousands)
September 30, 2022$473.26 2,567 $1,214,695 
September 30, 2021$407.70 330 $134,340 
The following table presents dividends declared per common share as well as total amounts declared, distributed and deferred for the periods indicated:
Dividends
(in thousands, except per share amounts)Per ShareDeclaredDistributed(Released)/Deferred
2022
Three Months Ended March 31,$1.04 $87,280 $87,846 $(566)
Three Months Ended June 30,1.04 84,593 84,189 404 
Three Months Ended September 30,1.25 101,354 100,849 505 
Total$3.33 $273,227 $272,884 $343 
2021    
Three Months Ended March 31,$0.78 $65,947 $66,153 $(206)
Three Months Ended June 30,0.78 64,863 64,489 374 
Three Months Ended September 30,1.04 86,476 85,961 515 
Total$2.60 $217,286 $216,603 $683 
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Common Stock.
The following table presents activity related to shares of common stock issued and repurchased during the nine months ended September 30, 2022:
Common StockTreasury Common Stock
IssuedStockOutstanding
Balance at December 31, 2021
133,162,178(50,722,729)82,439,449
Dividend payable/paid8282
Common stock issued417,508417,508
Shares withheld for tax withholding (190,766)(190,766)
Shares repurchased under stock repurchase programs(1,498,143)(1,498,143)
Shares issued to directors41(41)
Balance at March 31, 2022
133,579,809(52,411,679)81,168,130
Dividend payable/paid2323
Common stock issued20,17820,178
Shares withheld for tax withholding (9,749)(9,749)
Shares repurchased under stock repurchase programs(685,522)(685,522)
Shares issued to directors4,122(924)3,198
Balance at June 30, 2022
133,604,132(53,107,874)80,496,258
Dividend payable/paid
Common stock issued16,67816,678
Shares withheld for tax withholding(8,812)(8,812)
Shares repurchased under stock repurchase programs(382,986)(382,986)
Shares issued to directors60(60)
Balance at September 30, 2022
133,620,870(53,499,732)80,121,138
11. INCOME TAXES
The Company’s provision for income taxes was $122.6 million and $80.3 million for the nine months ended September 30, 2022 and 2021, respectively. These amounts reflect effective tax rates of 15.8% and 13.1% for the nine months ended September 30, 2022 and 2021, respectively.
The effective tax rate of 15.8% for the nine months ended September 30, 2022 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $28.2 million, primarily related to $28.4 million of excess tax benefits recognized on share-based compensation vested during the period.
The effective tax rate of 13.1% for the nine months ended September 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $49.3 million, primarily related to $22.7 million of excess tax benefits recognized on share-based compensation vested during the period and $15.2 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the Company’s 5.375% senior unsecured notes due 2027 (the “2027 Senior Notes”) and 4.750% senior unsecured notes due 2026 (the “2026 Senior Notes”). Also included in the discrete items is a $5.1 million benefit related to prior year settlements, a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.0 million benefit related to the filing of prior year refund claims and $2.0 million of tax benefits related to other prior year items.
The Company is under or open to examination by the IRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and India, and states in the United States in which the Company has significant operations, such as New York and California. The tax years currently under or open to examination vary by jurisdiction but include years ranging from 2008 onwards.
The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. Based on the current status of income tax audits, the Company believes it is
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reasonably possible that the total amount of unrecognized benefits may decrease by approximately $29.4 million in the next twelve months as a result of the resolution of tax examinations.
The Inflation Reduction Act of 2022 (“IRA”), enacted on August 16, 2022, is not currently anticipated to have a material impact on the Company’s provision for income taxes.
12. SEGMENT INFORMATION
The Company has five operating segments: Index, Analytics, ESG and Climate, Real Assets and The Burgiss Group, LLC (“Burgiss”), which are presented as the following four reportable segments: Index, Analytics, ESG and Climate and All Other – Private Assets. During the three months ended June 30, 2022, the Company renamed the Real Estate operating segment to Real Assets.
The Index operating segment offers equity and fixed income indexes. The indexes are used in many areas of the investment process, including indexed product creation (e.g., Exchange Traded Funds (“ETFs”), mutual funds, annuities, futures, options, structured products and over-the-counter derivatives), performance benchmarking, portfolio construction and rebalancing, and asset allocation.
The Analytics operating segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and tools for analyzing market, credit, liquidity, counterparty and climate risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access Analytics tools and content through MSCI’s proprietary applications and application programming interfaces, third-party applications or directly through their own platforms. Additionally, the Analytics operating segment also provides various managed services to help clients operate more efficiently, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting.
The ESG and Climate operating segment offers products and services that help institutional investors understand how ESG and climate considerations can impact the long-term risk and return of their portfolio and individual security-level investments. In addition, the ESG and Climate operating segment provides data, ratings, research and tools to help investors navigate increasing regulation, meet new client demands and better integrate ESG and climate elements into their investment processes.
The Real Assets operating segment offers real estate market and transaction data, benchmarks, return-analytics, climate assessments and market insights for funds, investors, managers and other real estate market participants. In addition, Real Assets performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Assets operating segment also provides business intelligence products to real estate owners, managers, developers and brokers worldwide.
The Burgiss operating segment represents the Company’s equity method investment in Burgiss, a global provider of investment decision support tools for private capital.
The Chief Operating Decision Maker (“CODM”) measures and evaluates reportable segments based on segment operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, including certain non-recurring acquisition-related integration and transaction costs, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment Adjusted EBITDA, they are included in reported consolidated net income and are included in the reconciliation that follows.
The following table presents operating revenues by reportable segment for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(in thousands)
Operating revenues
Index$322,240 $321,503 $973,948 $919,957 
Analytics144,915 136,298 426,396 406,217 
ESG and Climate57,595 43,691 164,752 117,749 
All Other - Private Assets35,889 15,607 107,294 49,779 
Total$560,639 $517,099 $1,672,390 $1,493,702 
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The following table presents segment profitability and a reconciliation to net income for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(in thousands)
Index Adjusted EBITDA$245,967 $245,587 $737,012 $698,934 
Analytics Adjusted EBITDA67,634 50,291 181,484 145,836 
ESG and Climate Adjusted EBITDA15,910 9,820 42,334 20,585 
All Other - Private Assets Adjusted EBITDA11,450 897 29,819 12,775 
Total operating segment profitability340,961 306,595 990,649 878,130 
Amortization of intangible assets23,375 14,105 67,274 59,569 
Depreciation and amortization of property, equipment and leasehold improvements7,127 6,809 20,426 20,972 
Acquisition-related integration and transaction costs(1)
928 5,451 4,059 5,451 
Operating income309,531 280,230 898,890 792,138 
Other expense (income), net40,327 79,580 120,711 179,765 
Provision for income taxes52,612 30,774 122,577 80,255 
Net income$216,592 $169,876 $655,602 $532,118 
___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
Operating revenues by geography are based on the shipping address of the ultimate customer utilizing the product. The following table presents operating revenues by geographic area for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(in thousands)
Operating revenues
Americas:
United States$233,196 $213,756 $696,284 $611,226 
Other24,450 22,060 70,559 63,259 
Total Americas257,646 235,816 766,843 674,485 
Europe, the Middle East and Africa ("EMEA"):
United Kingdom88,681 87,101 264,854 250,984 
Other125,607 113,102 379,695 332,554 
Total EMEA214,288 200,203 644,549 583,538 
Asia & Australia:    
Japan21,784 23,384 67,817 68,019 
Other66,921 57,696 193,181 167,660 
Total Asia & Australia88,705 81,080 260,998 235,679 
Total$560,639 $517,099 $1,672,390 $1,493,702 
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Long-lived assets consist of property, equipment and leasehold improvements, right of use assets and internally developed capitalized software, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated:
As of
September 30,December 31,
20222021
(in thousands)
Long-lived assets
Americas:
United States$177,089 $167,870 
Other12,272 13,480 
Total Americas189,361 181,350 
EMEA:
United Kingdom18,552 19,563 
Other22,376 34,240 
Total EMEA40,928 53,803 
Asia & Australia:
Japan657 1,150 
Other34,930 31,873 
Total Asia & Australia35,587 33,023 
Total$265,876 $268,176 
13. SUBSEQUENT EVENTS
Subsequent to the three months ended September 30, 2022 and through trade date of October 24, 2022, the Company repurchased an additional 0.2 million shares of common stock at an average price of $430.07 per share for a total value of $70.1 million.
On October 24, 2022, the Board of Directors declared a quarterly cash dividend of $1.25 per share for the three months ending December 31, 2022 (“fourth quarter 2022”). The fourth quarter 2022 dividend is payable on November 30, 2022 to shareholders of record as of the close of trading on November 10, 2022.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A.—Risk Factors,” in our Form 10-K.
Except as the context otherwise indicates, the terms “MSCI,” the “Company,” “we,” “our” and “us” refer to MSCI Inc., together with its subsidiaries.
Overview
We are a leading provider of critical decision support tools and solutions for the global investment community. Our mission-critical offerings help investors address the challenges of a transforming investment landscape and power better investment decisions. Leveraging our knowledge of the global investment process and our expertise in research, data and technology, we enable our clients to understand and analyze key drivers of risk and return and confidently and efficiently build more effective portfolios. We operate in four reportable segments as follows: Index, Analytics, ESG and Climate, and All Other – Private Assets.
Our growth strategy includes: (a) extending leadership in research-enhanced content across asset classes, (b) leading the enablement of ESG and climate investment integration, (c) enhancing distribution and content-enabling technology, (d) expanding solutions that empower client customization, (e) strengthening client relationships and growing into strategic partnerships with clients and (f) executing strategic relationships and acquisitions with complementary content and technology companies. For more information about our Company’s operations, see “Item 1: Business” in our Form 10-K.
As of September 30, 2022, we served over 6,6001 clients in more than 95 countries.
Our principal business model is generally to license annual, recurring subscriptions for the majority of our Index, Analytics and ESG and Climate products and services for a fee due in advance of the service period. Real Assets products are also licensed annually through subscriptions, which are generally recurring, for a fee which is paid in advance when products are generally delivered ratably over the subscription period or in arrears after the product is delivered. A portion of our fees comes from clients who use our indexes as the basis for index-linked investment products. Such fees are primarily based on a client’s assets under management (“AUM”), trading volumes and fee levels.
In evaluating our financial performance, we focus on revenue and profit growth, including results accounted for under generally accepted accounting principles in the United States (“GAAP”) as well as non-GAAP measures, for the Company as a whole and by operating segment.
We present revenues disaggregated by types and by segments, which represent our major product lines. We also review expenses by activity, which provides more transparency into how resources are being deployed. In addition, we utilize operating metrics including Run Rate, subscription sales and Retention Rate to manage and assess performance and to provide deeper insights into the recurring portion of our business.
In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations and acquisitions. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period. While operating revenues adjusted for the impact of foreign currency fluctuations includes asset-based fees that have been adjusted for the impact of foreign currency fluctuations, the underlying AUM, which is the primary component of asset-based fees, is not adjusted for foreign currency fluctuations. Approximately three-fifths of the AUM is invested in securities denominated in currencies other than the U.S. dollar, and accordingly, any such impact is excluded from the disclosed foreign currency-adjusted variances.
For the nine months ended September 30, 2022, our largest client organization by revenue, BlackRock, accounted for 10.5% of our total revenues, with 95.3% of the revenue from BlackRock coming from fees based on the assets in BlackRock’s ETFs that are based on our indexes.
The discussion of our results of operations for the three and nine months ended September 30, 2022 and 2021 are presented below. The results of operations for interim periods may not be indicative of future results.
1 Represents the aggregate of all related clients under their respective parent entity.
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Results of Operations
Operating Revenues
Our operating revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group operating revenues by major product or reportable segment as follows: Index, Analytics, ESG and Climate and All Other – Private Assets, which includes the Real Assets operating segment (formerly known as the Real Estate operating segment).
The following table presents operating revenues by type for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Recurring subscriptions$420,216 $357,640 17.5 %$1,227,025 $1,043,502 17.6 %
Asset-based fees125,620 141,745 (11.4 %)402,889 404,593 (0.4 %)
Non-recurring14,803 17,714 (16.4 %)42,476 45,607 (6.9 %)
Total operating revenues$560,639 $517,099 8.4 %$1,672,390 $1,493,702 12.0 %
Total operating revenues increased 8.4% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations individually, total operating revenues would have increased 4.9% and 10.7%, respectively.
Operating revenues from recurring subscriptions increased 17.5% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by strong growth in Index products, which increased $20.2 million, or 12.2%, All Other – Private Assets products, which increased $20.2 million, or 130.8%, mainly reflecting the acquisition of RCA, and ESG and Climate products, which increased $13.8 million, or 32.3%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 15.6%.
Operating revenues from asset-based fees decreased 11.4% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes decreased by 14.3% and 14.9%, respectively, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased 15.6%, driven by volume increases.
Total operating revenues increased 12.0% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Adjusting for the impact of acquisitions and foreign currency exchange rate fluctuations individually, total operating revenues would have increased 8.1% and 13.6%, respectively.
Operating revenues from recurring subscriptions increased 17.6% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by strong growth in Index products, which increased $59.3 million, or 12.3%, All Other – Private Assets products, which increased $57.9 million, or 119.8%, mainly reflecting the acquisition of RCA, and ESG and Climate products, which increased $45.7 million, or 39.6%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations, operating revenues from recurring subscriptions would have increased 14.2%.
Operating revenues from asset-based fees decreased 0.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes, partially offset by an increase in revenues from exchange traded futures and options contracts. Operating revenues from ETFs linked to MSCI equity indexes decreased by 3.6%, primarily driven by a decrease in average basis point fees, partially offset by an increase in average AUM. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased by 17.3%, driven by volume increases.
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The following table presents the value of AUM in ETFs linked to MSCI equity indexes and the sequential change of such assets as of the end of each of the periods indicated:
Period Ended
20212022
(in billions)
March
31,
June
30,
September
30,
December
31,
March
31,
June
30,
September
30,
AUM in ETFs linked to MSCI equity indexes(1), (2)
$1,209.6 $1,336.2 $1,336.6 $1,451.6 $1,389.3 $1,189.5 $1,081.2 
Sequential Change in Value
Market Appreciation/(Depreciation)$43.2 $73.7 $(30.7)$56.5 $(89.7)$(207.3)$(105.7)
Cash Inflows62.8 52.9 31.1 58.5 27.4 7.5 (2.6)
Total Change$106.0 $126.6 $0.4 $115.0 $(62.3)$(199.8)$(108.3)
The following table presents the average value of AUM in ETFs linked to MSCI equity indexes for the periods indicated:
20212022
(in billions)MarchJuneSeptemberDecemberMarchJuneSeptember
AUM in ETFs linked to MSCI equity indexes(1), (2)
Quarterly average$1,169.2 $1,292.4 $1,361.9 $1,414.8 $1,392.5 $1,285.4 $1,208.9 
Year-to-date average$1,169.2 $1,230.8 $1,274.5 $1,309.6 $1,392.5 $1,338.9 $1,295.6 
___________________________
(1)The historical values of the AUM in ETFs linked to our equity indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in ETFs Linked to MSCI Equity Indexes” on our Investor Relations homepage at http://ir.msci.com. This information is updated mid-month each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any other report filed with the SEC. The AUM in ETFs also includes AUM in Exchange Traded Notes, the value of which is less than 1.0% of the AUM amounts presented.
(2)The value of AUM in ETFs linked to MSCI equity indexes is calculated by multiplying the equity ETF net asset value by the number of shares outstanding.
The average value of AUM in ETFs linked to MSCI equity indexes for the three months ended September 30, 2022, was down $153.0 billion, or 11.2%, compared to the three months ended September 30, 2021. For the nine months ended September 30, 2022, it was up $21.1 billion, or 1.7%, compared to the nine months ended September 30, 2021.
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The following table presents operating revenues by reportable segment and revenue type for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating revenues:
Index
Recurring subscriptions$185,531 $165,310 12.2 %$539,740 $480,488 12.3 %
Asset-based fees125,620 141,745 (11.4 %)402,889 404,593 (0.4 %)
Non-recurring11,089 14,448 (23.2 %)31,319 34,876 (10.2 %)
Index total322,240 321,503 0.2 %973,948 919,957 5.9 %
Analytics
Recurring subscriptions142,751 134,320 6.3 %420,047 399,360 5.2 %
Non-recurring2,164 1,978 9.4 %6,349 6,857 (7.4 %)
Analytics total144,915 136,298 6.3 %426,396 406,217 5.0 %
ESG and Climate
Recurring subscriptions56,353 42,592 32.3 %160,962 115,299 39.6 %
Non-recurring1,242 1,099 13.0 %3,790 2,450 54.7 %
ESG and Climate total57,595 43,691 31.8 %164,752 117,749 39.9 %
All Other - Private Assets
Recurring subscriptions35,581 15,418 130.8 %106,276 48,355 119.8 %
Non-recurring308 189 63.0 %1,018 1,424 (28.5 %)
All Other - Private Assets total35,889 15,607 130.0 %107,294 49,779 115.5 %
Total operating revenues$560,639 $517,099 8.4 %$1,672,390 $1,493,702 12.0 %
Refer to the section titled “Segment Results” that follows for further discussion of segment revenues.
Operating Expenses
We group our operating expenses into the following activity categories:
Cost of revenues;
Selling and marketing;
Research and development (“R&D”);
General and administrative (“G&A”);
Amortization of intangible assets; and
Depreciation and amortization of property, equipment and leasehold improvements.
Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved. Cost of revenues, selling and marketing, R&D and G&A all include both compensation as well as non-compensation related expenses.
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The following table presents operating expenses by activity category for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating expenses:
Cost of revenues$98,418 $89,674 9.8 %$301,957 $262,781 14.9 %
Selling and marketing65,545 59,819 9.6 %192,671 174,477 10.4 %
Research and development25,941 28,352 (8.5 %)78,179 80,745 (3.2 %)
General and administrative30,702 38,110 (19.4 %)112,993 103,020 9.7 %
Amortization of intangible assets23,375 14,105 65.7 %67,274 59,569 12.9 %
Depreciation and amortization of property, equipment and leasehold improvements
7,127 6,809 4.7 %20,426 20,972 (2.6 %)
Total operating expenses$251,108 $236,869 6.0 %$773,500 $701,564 10.3 %
Total operating expenses increased 6.0% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 11.5%.
Total operating expenses increased 10.3% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Adjusting for the impact of foreign currency exchange rate fluctuations, the increase would have been 14.1%.
Cost of Revenues
Cost of revenues expenses consist of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, cloud service, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support and maintain existing products; costs of product management teams; costs of client service and consultant teams to support customer needs; as well as other support costs directly attributable to the cost of revenues including certain human resources, finance and legal costs.
Cost of revenues increased 9.8% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, reflecting increases across the All Other – Private Assets, ESG and Climate and Index reportable segments, partially offset by decreased spending in the Analytics reportable segment. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs and market data costs, as well as higher compensation and benefits costs, primarily reflecting higher wages and salaries, as a result of increased headcount.
Cost of revenues increased 14.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting increases across the All Other – Private Assets, ESG and Climate and Index reportable segments, partially offset by decreased spending in the Analytics reportable segment. The change was driven by increases in non-compensation costs, primarily relating to higher information technology costs, professional fees and market data costs, as well as higher compensation and benefits costs, primarily reflecting higher wages and salaries and benefits, as a result of increased headcount.
Selling and Marketing
Selling and marketing expenses consist of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales and marketing teams, as well as costs incurred in other departments associated with acquiring new business, including product management, research, technology and sales operations.
Selling and marketing expenses increased 9.6% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, reflecting increases across the ESG and Climate, All Other – Private Assets and Index reportable segments, partially offset by decreases in the Analytics reportable segment. The change was driven by increases in compensation and benefits costs, primarily relating to higher benefits and wages and salaries costs, as a result of increased headcount.
Selling and marketing expenses increased 10.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting increases across the All Other – Private Assets, ESG and Climate and Index reportable segments, partially offset by decreases in the Analytics reportable segment. The change was primarily driven by increases in compensation and benefits costs, primarily relating to higher wages and salaries and benefits costs, as a result of increased headcount.
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The change was also driven by higher non-compensation costs, primarily related to higher travel costs and costs associated with conferences and events.
Research and Development
R&D expenses consist of costs to develop new or enhance existing products and the costs to develop new or enhanced technologies and service platforms for the delivery of our products and services and primarily include the costs of development, research, product management, project management and the technology support directly associated with these activities.
R&D expenses decreased 8.5% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by increased capitalization of expenses related to internally developed software projects, partially offset by higher wages and salaries, driven by headcount increases. Taking into consideration investments eligible for capitalization, research and development spending increased across the All Other - Private Assets, ESG and Climate, and Index reportable segments, partially offset by decreased spending in the Analytics reportable segment.
R&D expenses decreased 3.2% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by increased capitalization of expenses related to internally developed software projects. The decrease was partially offset by higher wages and salaries and benefits costs, driven by headcount increases, as well as higher non-compensation costs, reflecting increased information technology costs. Taking into consideration investments eligible for capitalization, R&D spending increased across the All Other - Private Assets, Index and ESG and Climate reportable segments, partially offset by decreased spending in the Analytics reportable segment.
General and Administrative
G&A expenses consist of costs primarily related to finance operations, human resources, office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service.

G&A expenses decreased 19.4% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by decreases in the All Other – Private Assets, Analytics and Index reportable segments. The change was primarily driven by the absence of transaction costs related to the acquisition of RCA, as well as lower non-compensation costs, reflecting decreased other non-income tax expenses as a result of favorable settlements reached in the current period.

G&A expenses increased 9.7% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by increases across the All Other – Private Assets, Index and ESG and Climate reportable segments, partially offset by decreases in the Analytics reportable segment. The change was primarily driven by increases in compensation costs, as a result of increased headcount.
The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Compensation and benefits$155,447 $152,540 1.9 %$489,527 $452,237 8.2 %
Non-compensation expenses65,159 63,415 2.8 %196,273 168,786 16.3 %
Amortization of intangible assets23,375 14,105 65.7 %67,274 59,569 12.9 %
Depreciation and amortization of property, equipment and leasehold improvements
7,127 6,809 4.7 %20,426 20,972 (2.6 %)
Total operating expenses$251,108 $236,869 6.0 %$773,500 $701,564 10.3 %
Compensation and Benefits
Compensation and benefits costs increased 1.9% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. For the nine months ended September 30, 2022, the increase was 8.2% compared to the nine months ended September 30, 2021. The increase in both the three and nine months ended September 30, 2022 was primarily driven by headcount growth across all spending categories. We had 4,767 employees as of September 30, 2022, compared to 4,237 employees as of September 30, 2021, reflecting a 12.5% growth in the number of employees. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefits costs. As of
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September 30, 2022, 65.0% of our employees were located in emerging market centers compared to 62.5% as of September 30, 2021. Adjusting for the impact of foreign currency exchange rate fluctuations, compensation and benefits costs would have increased by 9.0% and 13.3%, respectively, for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.
A significant portion of the incentive compensation component of operating expenses is based on the achievement of a number of financial and operating metrics. In a scenario where operating revenue growth and profitability moderate, incentive compensation would be expected to decrease accordingly.
Non-Compensation Expenses

Non-compensation expenses increased 2.8% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by higher information technology costs and professional fees, partially offset by the absence of transaction costs related to the acquisition of RCA as well as decreased other non-income tax expenses as a result of favorable settlements reached in the current period.

Non-compensation expenses increased 16.3% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by higher information technology costs, professional fees and market data costs.
Fixed costs constitute a significant portion of the non-compensation component of operating expenses. The discretionary non-compensation component of operating expenses could, however, be reduced in the near-term in a scenario where operating revenue growth moderates.
Amortization of Intangible Assets
Amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and capitalization of internally developed software projects recognized over their estimated useful lives. Amortization of intangible assets expense increased 65.7% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by additional amortization recognized on acquired intangible assets following the acquisition of RCA.
Amortization of intangible assets expense increased 12.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by additional amortization recognized on acquired intangible assets following the acquisition of RCA, partially offset by the absence of intangible assets write-off costs.
Depreciation and Amortization of Property, Equipment and Leasehold Improvements
Depreciation and amortization of property, equipment and leasehold improvements consists of expenses related to depreciating or amortizing the cost of computer and related equipment, leasehold improvements, software and furniture and fixtures over the estimated useful life of the assets. Depreciation and amortization of property, equipment and leasehold improvements remained relatively flat for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, respectively.
Other Expense (Income), Net
The following table shows our other expense (income), net for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Interest income$(3,938)$(396)894.4 %$(5,160)$(1,129)357.0 %
Interest expense44,162 42,137 4.8 %125,961 119,278 5.6 %
Other expense (income)103 37,839 (99.7 %)(90)61,616 (100.1 %)
Total other expense (income), net$40,327 $79,580 (49.3 %)$120,711 $179,765 (32.9 %)
Other expense (income), net decreased 49.3% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by the absence of debt extinguishment costs, as well as higher interest income. The decrease was partially offset by higher interest expense associated with higher average outstanding debt balances.
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Other expense (income), net decreased 32.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the absence of debt extinguishment costs and higher interest income, partially offset by higher interest expense associated with higher average outstanding debt balances.
Income Taxes
The following table shows our income tax provision and effective tax rate for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Provision for income taxes52,612 30,774 71.0 %122,577 80,255 52.7 %
Effective tax rate19.5 %15.3 %27.5 %15.8 %13.1 %20.6 %

The effective tax rate of 19.5% for the three months ended September 30, 2022 reflects the Company's estimate of the effective tax rate for the period. The level of discrete items was not impactful to the effective tax rate for the period.
The effective tax rate of 15.3% for the three months ended September 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $15.1 million, primarily related to the $9.6 million tax impact of loss on debt extinguishment recognized during the period with respect to the redemption of the 2027 Senior Notes. Also included in the discrete items is a $3.8 million benefit related to prior year settlements, $1.3 million of excess tax benefits recognized on share-based compensation vested during the period and $0.4 million of tax benefits related to other prior year items.
The effective tax rate of 15.8% for the nine months ended September 30, 2022 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $28.2 million, primarily related to $28.4 million of excess tax benefits recognized on share-based compensation vested during the period.
The effective tax rate of 13.1% for the nine months ended September 30, 2021 reflects the Company's estimate of the effective tax rate for the period and was impacted by certain favorable discrete items totaling $49.3 million, primarily related to $22.7 million of excess tax benefits recognized on share-based compensation vested during the period and $15.2 million related to the tax impact of loss on debt extinguishment recognized during the period on the redemption of the Company’s 2027 Senior Notes and 2026 Senior Notes. Also included in the discrete items is a $5.1 million benefit related to prior year settlements, a $2.3 million benefit related to the revaluation of deferred taxes as a result of the enactment of an increase in the UK corporate tax rate, a $2.0 million benefit related to the filing of prior year refund claims and $2.0 million of tax benefits related to other prior year items.
Net Income
The following table shows our net income for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Net income$216,592 $169,876 27.5 %$655,602 $532,118 23.2 %
As a result of the factors described above, net income increased 27.5% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, and increased 23.2% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
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Weighted Average Shares and Common Shares Outstanding
The following table shows our weighted average shares outstanding for the periods indicated:
Three Months Ended
September 30,
% ChangeNine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Weighted average shares outstanding:
Basic80,50082,470(2.4 %)81,00182,521(1.8 %)
Diluted80,87483,554(3.2 %)81,48183,446(2.4 %)
    
The following table shows our common shares outstanding for the periods indicated:
As of% Change
(in thousands)September 30,
2022
December 31,
2021
Common shares outstanding80,121 82,439 (2.8 %)
The decrease in weighted average shares and common shares outstanding primarily reflects the impact of share repurchases made pursuant to the stock repurchase program.
Adjusted EBITDA
“Adjusted EBITDA,” a non-GAAP measure used by management to assess operating performance, is defined as net income before (1) provision for income taxes, (2) other expense (income), net, (3) depreciation and amortization of property, equipment and leasehold improvements, (4) amortization of intangible assets and, at times, (5) certain other transactions or adjustments, including, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs.
“Adjusted EBITDA expenses,” a non-GAAP measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets and, at times, certain other transactions or adjustments, including, when applicable, impairment related to sublease of leased property and certain non-recurring acquisition-related integration and transaction costs.
Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures for management to assess the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of certain capital spending and acquisitions that do not directly affect what management considers to be the Company’s ongoing operating performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on, among other things, long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.
The following table presents the calculation of the non-GAAP Adjusted EBITDA measure for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating revenues$560,639 $517,099 8.4 %$1,672,390 $1,493,702 12.0 %
Adjusted EBITDA expenses219,678 210,504 4.4 %681,741 615,572 10.7 %
Adjusted EBITDA$340,961 $306,595 11.2 %$990,649 $878,130 12.8 %
Adjusted EBITDA margin %60.8 %59.3 %59.2 %58.8 %
Operating margin %55.2 %54.2 %53.7 %53.0 %
The change in Adjusted EBITDA margin reflects changes in the rate of growth of Adjusted EBITDA expenses as compared to the rate of growth of operating revenues, driven by the factors previously described.
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Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses
The following table presents the reconciliation of Adjusted EBITDA to net income for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Index Adjusted EBITDA$245,967 $245,587 0.2 %$737,012 $698,934 5.4 %
Analytics Adjusted EBITDA67,634 50,291 34.5 %181,484 145,836 24.4 %
ESG and Climate Adjusted EBITDA15,910 9,820 62.0 %42,334 20,585 105.7 %
All Other - Private Assets Adjusted EBITDA11,450 897 1176.5 %29,819 12,775 133.4 %
Consolidated Adjusted EBITDA340,961 306,595 11.2 %990,649 878,130 12.8 %
Amortization of intangible assets23,375 14,105 65.7 %67,274 59,569 12.9 %
Depreciation and amortization of property, equipment and leasehold improvements
7,127 6,809 4.7 %20,426 20,972 (2.6 %)
Acquisition-related integration and
 transaction costs (1)
928 5,451 (83.0 %)4,059 5,451 (25.5 %)
Operating income309,531 280,230 10.5 %898,890 792,138 13.5 %
Other expense (income), net40,327 79,580 (49.3 %)120,711 179,765 (32.9 %)
Provision for income taxes52,612 30,774 71.0 %122,577 80,255 52.7 %
Net income$216,592 $169,876 27.5 %$655,602 $532,118 23.2 %
___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Index Adjusted EBITDA expenses$76,273 $75,916 0.5 %$236,936 $221,023 7.2 %
Analytics Adjusted EBITDA expenses77,281 86,007 (10.1 %)244,912 260,381 (5.9 %)
ESG and Climate Adjusted EBITDA expenses
41,685 33,871 23.1 %122,418 97,164 26.0 %
All Other - Private Assets Adjusted EBITDA expenses
24,439 14,710 66.1 %77,475 37,004 109.4 %
Consolidated Adjusted EBITDA expenses219,678 210,504 4.4 %681,741 615,572 10.7 %
Amortization of intangible assets23,375 14,105 65.7 %67,274 59,569 12.9 %
Depreciation and amortization of property, equipment and leasehold improvements
7,127 6,809 4.7 %20,426 20,972 (2.6 %)
Acquisition-related integration and
 transaction costs (1)
928 5,451 (83.0 %)4,059 5,451 (25.5 %)
Total operating expenses$251,108 $236,869 6.0 %$773,500 $701,564 10.3 %
___________________________
(1)Incremental and non-recurring costs attributable to acquisitions directly related to the execution of the transaction and integration of the acquired business that have occurred no later than 12 months after the close of the transaction.
The discussion of the segment results is presented below.
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Segment Results
Index Segment
The following table presents the results for the Index segment for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating revenues:
Recurring subscriptions$185,531 $165,310 12.2 %$539,740 $480,488 12.3 %
Asset-based fees125,620 141,745 (11.4 %)402,889 404,593 (0.4 %)
Non-recurring11,089 14,448 (23.2 %)31,319 34,876 (10.2 %)
Operating revenues total322,240 321,503 0.2 %973,948 919,957 5.9 %
Adjusted EBITDA expenses76,273 75,916 0.5 %236,936 221,023 7.2 %
Adjusted EBITDA$245,967 $245,587 0.2 %$737,012 $698,934 5.4 %
Adjusted EBITDA margin %76.3 %76.4 %75.7 %76.0 %
Index operating revenues increased 0.2% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by growth from recurring subscriptions, partially offset by a decline in asset-based fees and non-recurring revenues. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 0.7%.
Operating revenues from recurring subscriptions increased 12.2% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products.
Operating revenues from asset-based fees decreased 11.4% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by an increase in revenues from exchange traded futures and options contracts linked to MSCI indexes. Operating revenues from ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes decreased by 14.3% and 14.9%, respectively, primarily driven by a decrease in average AUM and average basis point fees. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased 15.6%, driven by volume increases.
Index segment Adjusted EBITDA expenses increased 0.5% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by higher non-compensation expenses across the cost of revenues, selling and marketing and R&D expense categories, partially offset by lower non-compensation expenses in the G&A expense category. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 6.1%.
Index operating revenues increased 5.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by growth from recurring subscriptions. Adjusting for the impact of foreign currency exchange rate fluctuations, Index operating revenues would have increased 6.2%.
Operating revenues from recurring subscriptions increased 12.3% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by strong growth from both market cap-weighted and factor, ESG and climate Index products.
Operating revenues from asset-based fees decreased 0.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven by a decline in revenues from ETFs linked to MSCI equity indexes, partially offset by an increase in revenues from exchange traded futures and options contracts. Operating revenues from ETFs linked to MSCI equity indexes decreased by 3.6%, primarily driven by a decrease in average basis point fees, partially offset by an increase in average AUM. Operating revenues from exchange traded futures and options contracts linked to MSCI indexes increased by 17.3%, driven by volume increases.
Index segment Adjusted EBITDA expenses increased 7.2% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting higher compensation and non-compensation expenses to support growth across all
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expense activity categories. Adjusting for the impact of foreign currency exchange rate fluctuations, Index segment Adjusted EBITDA expenses would have increased by 11.1%.
Analytics Segment
The following table presents the results for the Analytics segment for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating revenues:
Recurring subscriptions$142,751 $134,320 6.3 %$420,047 $399,360 5.2 %
Non-recurring2,164 1,978 9.4 %6,349 6,857 (7.4 %)
Operating revenues total144,915 136,298 6.3 %426,396 406,217 5.0 %
Adjusted EBITDA expenses77,281 86,007 (10.1 %)244,912 260,381 (5.9 %)
Adjusted EBITDA$67,634 $50,291 34.5 %$181,484 $145,836 24.4 %
Adjusted EBITDA margin %46.7 %36.9 %42.6 %35.9 %
Analytics operating revenues increased 6.3% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 7.5%.
Analytics segment Adjusted EBITDA expenses decreased 10.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by lower compensation expenses across all expense activity categories, as a result of lower incentive compensation and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 5.7%.
Analytics operating revenues increased 5.0% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by growth from recurring subscriptions related to Multi-Asset Class and Equity Analytics products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics operating revenues would have increased 5.8%.
Analytics segment Adjusted EBITDA expenses decreased 5.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by lower compensation expenses across all expense activity categories, as a result of lower incentive compensation and increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics segment Adjusted EBITDA expenses would have decreased 2.9%.
ESG and Climate Segment
The following table presents the results for the ESG and Climate segment for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating revenues:
Recurring subscriptions$56,353 $42,592 32.3 %$160,962 $115,299 39.6 %
Non-recurring1,242 1,099 13.0 %3,790 2,450 54.7 %
Operating revenues total57,595 43,691 31.8 %164,752 117,749 39.9 %
Adjusted EBITDA expenses41,685 33,871 23.1 %122,418 97,164 26.0 %
Adjusted EBITDA$15,910 $9,820 62.0 %$42,334 $20,585 105.7 %
Adjusted EBITDA margin %27.6 %22.5 %25.7 %17.5 %
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ESG and Climate operating revenues increased 31.8% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by strong growth from recurring subscriptions related to Ratings and Climate products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 46.2%.
ESG and Climate segment Adjusted EBITDA expenses increased 23.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by higher compensation expenses across all spending categories, as a result of increased wages and salaries and benefits costs, due to higher headcount, partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 30.4%.
ESG and Climate operating revenues increased 39.9% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by strong growth from recurring subscriptions related to Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate operating revenues would have increased 49.4%.
ESG and Climate segment Adjusted EBITDA expenses increased 26.0% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting higher compensation and non-compensation expenses to support growth across all expense categories. The increase was primarily driven by increased wages and salaries, incentive compensation and benefits costs, as a result of increased headcount, as well as increased professional fees and information technology costs. The increase was partially offset by increased capitalization of expenses related to internally developed software projects. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate segment Adjusted EBITDA expenses would have increased 31.2%.
All Other – Private Assets Segment
The following table presents the results for the All Other – Private Assets segment for the periods indicated:
Three Months Ended
September 30,
% Change Nine Months Ended
September 30,
% Change
(in thousands)2022202120222021
Operating revenues:
Recurring subscriptions$35,581 $15,418 130.8 %$106,276 $48,355 119.8 %
Non-recurring308 189 63.0 %1,018 1,424 (28.5 %)
Operating revenues total35,889 15,607 130.0 %107,294 49,779 115.5 %
Adjusted EBITDA expenses24,439 14,710 66.1 %77,475 37,004 109.4 %
Adjusted EBITDA$11,450 $897 1176.5 %$29,819 $12,775 133.4 %
Adjusted EBITDA margin %31.9 %5.7 %27.8 %25.7 %
All Other – Private Assets operating revenues increased 130.0% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by revenues attributable to the acquisition of RCA as well as growth in Enterprise Analytics, Global Intel and Climate Value-at-Risk products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 30.6%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other – Private Assets operating revenues would have increased 13.9% and 146.7%, respectively.
All Other – Private Assets segment Adjusted EBITDA expenses increased 66.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, reflecting higher compensation and non-compensation across all spending categories, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have decreased 1.6% when excluding the impact of acquisitions and increased 79.3% when excluding the impact of foreign currency exchange rate fluctuations.
All Other – Private Assets operating revenues increased 115.5% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by revenues attributable to the acquisition of RCA as well as growth in Global Intel, Climate Value-at-Risk and Enterprise Analytics products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for both the impact of the acquisition and foreign currency exchange rate fluctuations, All Other – Private Assets operating revenues would have increased 11.7%. Adjusting for the impact of the acquisition and foreign currency exchange rate fluctuations individually, All Other – Private Assets operating revenues would have decreased 0.3% and increased 127.5%, respectively.
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All Other – Private Assets segment Adjusted EBITDA expenses increased 109.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, reflecting higher compensation and non-compensation across all spending categories, primarily driven by the acquisition of RCA. All Other - Private Assets segment Adjusted EBITDA expenses would have increased 3.4% when excluding the impact of acquisitions and increased 120.9% when excluding the impact of foreign currency exchange rate fluctuations.
Run Rate
“Run Rate” estimates at a particular point in time the annualized value of the recurring revenues under our client license agreements (“Client Contracts”) for the next 12 months, assuming all Client Contracts that come up for renewal, or reach the end of the committed subscription period, are renewed and assuming then-current currency exchange rates, subject to the adjustments and exclusions described below. For any Client Contract where fees are linked to an investment product’s assets or trading volume/fees, the Run Rate calculation reflects, for ETFs, the market value on the last trading day of the period, for futures and options, the most recent quarterly volumes and/or reported exchange fees, and for other non-ETF products, the most recent client-reported assets. Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we add 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, non-renewal or an indication the client does not intend to continue their subscription during the period and have determined that such notice evidences the client’s final decision to terminate or not renew the applicable products or services, even though such notice is not effective until a later date.
Changes in our recurring revenues typically lag changes in Run Rate. The actual amount of recurring revenues we will realize over the following 12 months will differ from Run 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 U.S. GAAP, including those related to the timing of implementation and report deliveries for certain of our products and services;
fluctuations in foreign currency exchange rates; and
the impact of acquisitions and divestitures.
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The following table presents Run Rates by reportable segment as of the dates indicated and the growth percentages over the periods indicated:
As of%
Change
(in thousands)September 30,
2022
September 30,
2021
Index:
Recurring subscriptions$750,818 $667,023 12.6 %
Asset-based fees479,399 550,230 (12.9 %)
Index total1,230,217 1,217,253 1.1 %
Analytics597,752 568,932 5.1 %
ESG and Climate237,930 178,398 33.4 %
All Other - Private Assets137,401 131,678 4.3 %
Total Run Rate$2,203,300 $2,096,261 5.1 %
Recurring subscriptions total$1,723,901 $1,546,031 11.5 %
Asset-based fees479,399 550,230 (12.9 %)
Total Run Rate$2,203,300 $2,096,261 5.1 %
Total Run Rate increased 5.1%, driven by an 11.5% increase from recurring subscriptions, partially offset by a 12.9% decrease from asset-based fees. Adjusting for the impact of foreign currency exchange rate fluctuations, recurring subscriptions Run Rate would have increased 14.2%.
Run Rate from Index recurring subscriptions increased 12.6%, primarily driven by strong growth from market cap-weighted, factor, ESG and climate, and custom and specialized Index products. The increase reflected growth across all regions and client segments.
Run Rate from Index asset-based fees decreased 12.9%, primarily driven by lower AUM in ETFs linked to MSCI equity indexes and non-ETF indexed funds linked to MSCI indexes, partially offset by higher exchange traded futures and options volume.
Run Rate from Analytics products increased 5.1%, primarily driven by growth in both Equity Analytics and Multi-Asset Class products. Adjusting for the impact of foreign currency exchange rate fluctuations, Analytics Run Rate would have increased 8.1%.
Run Rate from ESG and Climate products increased 33.4%, driven by strong growth in Ratings, Climate and Screening products. Adjusting for the impact of foreign currency exchange rate fluctuations, ESG and Climate Run Rate would have increased 41.7%.
Run Rate from All Other - Private Assets increased 4.3%, primarily driven by growth in the RCA business as well as growth in Global Intel, Enterprise Analytics and Climate Value-at-Risk products, partially offset by unfavorable foreign currency exchange rate fluctuations. Adjusting for the impact of foreign currency exchange rate fluctuations, All Other - Private Assets Run Rate would have increased 11.9%.
Sales
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
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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.
The following table presents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the periods indicated:
Three Months Ended%
Change
Nine Months Ended%
Change
(in thousands)September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
New recurring subscription sales
Index$24,130 $19,546 23.5 %$74,493 $66,037 12.8 %
Analytics17,568 15,889 10.6 %50,391 44,381 13.5 %
ESG and Climate14,270 17,310 (17.6 %)55,617 46,706 19.1 %
All Other - Private Assets5,218 2,479 110.5 %16,490 6,023 173.8 %
New recurring subscription sales total61,186 55,224 10.8 %196,991 163,147 20.7 %
Subscription cancellations
Index(5,388)(6,203)(13.1 %)(18,468)(18,192)1.5 %
Analytics(6,029)(9,213)(34.6 %)(22,523)(25,188)(10.6 %)
ESG and Climate(1,303)(1,338)(2.6 %)(3,315)(3,636)(8.8 %)
All Other - Private Assets(1,744)(1,296)34.6 %(5,080)(2,881)76.3 %
Subscription cancellations total(14,464)(18,050)(19.9 %)(49,386)(49,897)(1.0 %)
Net new recurring subscription sales
Index18,742 13,343 40.5 %56,025 47,845 17.1 %
Analytics11,539 6,676 72.8 %27,868 19,193 45.2 %
ESG and Climate12,967 15,972 (18.8 %)52,302 43,070 21.4 %
All Other - Private Assets3,474 1,183 193.7 %11,410 3,142 263.1 %
Net new recurring subscription sales total46,722 37,174 25.7 %147,605 113,250 30.3 %
Non-recurring sales
Index13,375 17,366 (23.0 %)41,357 39,340 5.1 %
Analytics2,505 2,377 5.4 %8,412 8,123 3.6 %
ESG and Climate1,375 1,090 26.1 %3,553 2,927 21.4 %
All Other - Private Assets83 130 (36.2 %)690 1,201 (42.5 %)
Non-recurring sales total17,338 20,963 (17.3 %)54,012 51,591 4.7 %
Gross sales
Index$37,505 $36,912 1.6 %$115,850 $105,377 9.9 %
Analytics20,073 18,266 9.9 %58,803 52,504 12.0 %
ESG and Climate15,645 18,400 (15.0 %)59,170 49,633 19.2 %
All Other - Private Assets5,301 2,609 103.2 %17,180 7,224 137.8 %
Total gross sales$78,524 $76,187 3.1 %$251,003 $214,738 16.9 %
Net sales
Index$32,117 $30,709 4.6 %$97,382 $87,185 11.7 %
Analytics14,044 9,053 55.1 %36,280 27,316 32.8 %
ESG and Climate14,342 17,062 (15.9 %)55,855 45,997 21.4 %
All Other - Private Assets3,557 1,313 170.9 %12,100 4,343 178.6 %
Total net sales$64,060 $58,137 10.2 %$201,617 $164,841 22.3 %
A significant portion of MSCI's operating revenues are derived from subscriptions or licenses of products and services, which are provided over contractually-agreed periods of time that are subject to renewal or cancellation at the end of current contract terms.
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Retention Rate
The following table presents our Retention Rate by reportable segment for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Index96.9%96.0%96.5%96.1%
Analytics95.9%93.4%94.9%94.0%
ESG and Climate97.4%96.1%97.8%96.5%
All Other - Private Assets (1)
94.8%91.0%95.0%91.2%
Total96.4%94.5%95.9%94.9%
___________________________
(1)Retention rate for All Other – Private Assets excluding the impact of RCA was 95.7% and 95.8% for the three and nine months ended September 30, 2022, respectively. Retention rate for All Other – Private Assets excluding the impact of RCA was 93.7% and 94.2% for the three and nine months ended September 30, 2021, respectively.
Retention Rate is an important metric because subscription cancellations decrease our Run Rate and ultimately our future 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 or discontinue the subscription during the non-annual period, and we believe that such notice or intention evidences the client’s final decision to terminate or not renew the applicable agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscription Run Rate at the beginning of the fiscal year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Retention Rate for the period.
Retention Rate is computed by operating segment on a product/service-by-product/service basis. In general, if a client reduces the number of products or services to which it subscribes within a segment, or switches between products or services within a segment, we treat it as a cancellation for purposes of calculating our Retention Rate except in the case of a product or service switch that management considers to be a replacement product or service. In those replacement cases, only the net change to the client subscription, if a decrease, is reported as a cancel. In the Analytics and the ESG and Climate operating segments, substantially all product or service switches are treated as replacement products or services and netted in this manner, while in our Index and Real Assets operating segments, product or service switches that are treated as replacement products or services and receive netting treatment occur only in certain limited instances. In addition, we treat any reduction in fees resulting from a down-sell of the same product or service as a cancellation to the extent of the reduction. We do not calculate Retention Rate for that portion of our Run Rate attributable to assets in index-linked investment products or futures and options contracts, in each case, linked to our indexes.
Retention Rate is generally higher during the first three quarters and lower in the fourth quarter, as the fourth quarter is traditionally the largest renewal period in the year.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, “Introduction and Basis of Presentation,” of the Notes to Consolidated Financial Statements included in our Form 10-K. There have been no significant changes in our accounting policies since the end of the fiscal year ended December 31, 2021 or critical accounting estimates applied in the fiscal year ended December 31, 2021.
Liquidity and Capital Resources
We require capital to fund ongoing operations, internal growth initiatives and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, existing cash and cash equivalents and credit capacity under our existing credit facility. In addition, we believe we have access to additional funding in the public and private markets. We intend to use these sources of liquidity to, among other things, service our existing and future debt obligations, fund our working capital requirements for capital expenditures, investments, acquisitions and dividend payments, and make repurchases of our common stock. In connection with our
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business strategy, we regularly evaluate acquisition and strategic partnership opportunities. We believe our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our planned growth.
Senior Notes and Credit Agreement
As of September 30, 2022, we had an aggregate of $4,200 million in Senior Notes outstanding. In addition, under the Credit Agreement, we had as of September 30, 2022: (i) an aggregate of $350 million in Tranche A Term Loans outstanding under the TLA Facility and (ii) $500 million of undrawn borrowing capacity under the revolving credit facility. See Note 8, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) included herein for additional information on our outstanding indebtedness and revolving credit facility.
The Senior Notes and the Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly owned domestic subsidiaries that account for more than 5% of our and our subsidiaries’ consolidated assets, other than certain excluded subsidiaries (the “subsidiary guarantors”). Amounts due under the Credit Agreement are our and the subsidiary guarantors’ senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.
The indentures governing our Senior Notes (the “Indentures”) among us, each of the subsidiary guarantors, and Computershare, National Association, as trustee and successor to Wells Fargo Bank, National Association, contain covenants that limit our and certain of our subsidiaries’ ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indentures restrict our non-guarantor subsidiaries’ ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on a pari passu basis.
The Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and/or the ability of our existing or future subsidiaries to:
incur liens and further negative pledges;
incur additional indebtedness or prepay, redeem or repurchase indebtedness;
make loans or hold investments;
merge, dissolve, liquidate, consolidate with or into another person;
enter into acquisition transactions;
enter into sale/leaseback transactions;
issue disqualified capital stock;
sell, transfer or dispose of assets;
pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;
create new subsidiaries;
permit certain restrictions affecting our subsidiaries;
change the nature of our business, accounting policies or fiscal periods;
enter into any transactions with affiliates other than on an arm’s-length basis; and
amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.
The Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, and bankruptcy and insolvency events, and, in the case of the Credit Agreement, invalidity or impairment of loan documentation, change of control and customary ERISA defaults in addition to the foregoing. None of the restrictions above are expected to impact our ability to effectively operate the business.
The Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis not to exceed 4.25:1.00 (or 4.50:1.00 for two fiscal quarters following a material acquisition) and (2) the minimum Consolidated Interest
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Coverage Ratio (as defined in the Credit Agreement) measured quarterly on a rolling four-quarter basis of at least 4.00:1.00. As of September 30, 2022, our Consolidated Leverage Ratio was 3.14:1.00 and our Consolidated Interest Coverage Ratio was 8.73:1.00.
Our non-guarantor subsidiaries under the Senior Notes and the Credit Agreement consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $1,342.4 million, or 60.4%, of our total revenue for the trailing 12 months ended September 30, 2022, approximately $526.1 million, or 44.6%, of our consolidated operating income for the trailing 12 months ended September 30, 2022, and approximately $932.0 million, or 19.5%, of our consolidated total assets (excluding intercompany assets) and $738.7 million, or 12.6%, of our consolidated total liabilities, in each case as of September 30, 2022.
Share Repurchases
The following table provides information with respect to repurchases of the Company’s common stock pursuant to open market repurchases:
Nine Months Ended
(in thousands except per share data)
Average
Price
Paid Per
Share
Total
Number of
Shares
Repurchased
Dollar
Value of
Shares
Repurchased
September 30, 2022$473.26 2,567$1,214,695 
September 30, 2021$407.70 330$134,340 
As of September 30, 2022, there was $1,374.5 million of available authorization remaining under the 2022 Repurchase Program.
Cash Dividend
On October 24, 2022, the Board of Directors declared a quarterly cash dividend of $1.25 per share for the three months ending December 31, 2022. The fourth quarter 2022 dividend is payable on November 30, 2022 to shareholders of record as of the close of trading on November 10, 2022.
Cash Flows
The following table presents the Company’s cash and cash equivalents as of the dates indicated:
As of
(in thousands)September 30,
2022
December 31,
2021
Cash and cash equivalents$867,112 $1,421,449 
We typically seek to maintain minimum cash balances globally of approximately $225.0 million to $275.0 million for general operating purposes. As of September 30, 2022 and December 31, 2021, $342.0 million and $542.2 million, respectively, of the Company’s cash and cash equivalents were held by foreign subsidiaries. Repatriation of some foreign cash may be subject to certain withholding taxes in local jurisdictions and other distribution restrictions. We believe the global cash and cash equivalent balances that are maintained will be available to meet our global needs whether for general corporate purposes or other needs, including acquisitions or expansion of our products.
We believe that global cash flows from operations, together with existing cash and cash equivalents and funds available under our existing revolving credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our global operating activities and cash commitments for investing and financing activities, such as material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect that foreign cash flows from operations, together with existing cash and cash equivalents, will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter.
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Net Cash Provided by (Used In) Operating, Investing and Financing Activities
Nine Months Ended
September 30,
(in thousands)20222021
Net cash provided by operating activities$779,942 $656,405 
Net cash used in investing activities(52,413)(985,879)
Net cash (used in) provided by financing activities(1,252,827)321,249 
Effect of exchange rate changes(29,039)(7,632)
Net (decrease) increase in cash$(554,337)$(15,857)
Cash Flows From Operating Activities
Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. The year-over-year change was primarily driven by higher cash collections from customers, partially offset by higher payments for cash expenses, mainly reflecting higher cash compensation expenses, information technology costs, professional fees and market data costs.
Our primary uses of cash from operating activities are for the payment of cash compensation expenses, interest expenses, income taxes, technology costs, professional fees, market data costs and office rent. Historically, the payment of cash for compensation and benefits is at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash Flows From Investing Activities
The year-over-year change was primarily driven by the absence of cash outflows associated with acquisitions, partially offset by higher capitalized software development costs.
Cash Flows From Financing Activities
The year-over-year change was primarily driven by the impact of lower proceeds from borrowings and higher share repurchases, partially offset by lower repayments on debt.
Item 3.    Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
We are subject to foreign currency exchange fluctuation risk. Exchange rate movements can impact the U.S. dollar-reported value of our revenues, expenses, assets and liabilities denominated in non-U.S. dollar currencies or where the currency of such items is different than the functional currency of the entity where these items were recorded.
We generally invoice our clients in U.S. dollars; however, we invoice a portion of our clients in Euros, British pounds sterling, Japanese yen and a limited number of other non-U.S. dollar currencies. For the nine months ended September 30, 2022 and 2021, 15.8% and 15.1%, respectively, of our revenues are subject to foreign currency exchange rate risk and primarily included clients billed in foreign currency as well as U.S. dollar exposures on non-U.S. dollar foreign operating entities. Of the 15.8% of non-U.S. dollar exposure for the nine months ended September 30, 2022, 40.8% was in Euros, 30.2% was in British pounds sterling and 19.2% was in Japanese yen. Of the 15.1% of non-U.S. dollar exposure for the nine months ended September 30, 2021, 42.1% was in Euros, 25.9% was in British pounds sterling and 24.4% was in Japanese yen.
Revenues from asset-based fees represented 24.1% and 27.1% of operating revenues for the nine months ended September 30, 2022 and 2021, respectively. While a substantial portion of our asset-based fees are invoiced in U.S. dollars, the fees are based on the assets in investment products, of which approximately three-fifths are invested in securities denominated in currencies other than the U.S. dollar. Accordingly, declines in such other currencies against the U.S. dollar will decrease the fees payable to us under such licenses. In addition, declines in such currencies against the U.S. dollar could impact the attractiveness of such investment products resulting in net fund outflows, which would further reduce the fees payable under such licenses.
We are exposed to additional foreign currency risk in certain of our operating costs. Approximately 42.9% and 42.1% of our operating expenses for the nine months ended September 30, 2022 and 2021, respectively, were denominated in foreign currencies, the
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significant majority of which were denominated in British pounds sterling, Indian rupees, Euros, Hungarian forints, Mexican pesos and Swiss francs.
We have certain monetary assets and liabilities denominated in currencies other than local functional amounts and when these balances are remeasured into their local functional currency, either a gain or a loss results from the change of the value of the functional currency as compared to the originating currencies. We manage foreign currency exchange rate risk, in part, through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the impact on the income statement of the volatility of amounts denominated in certain foreign currencies. We recognized total foreign currency exchange gains of $2.7 million and losses of $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.
Item 4.    Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of September 30, 2022, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.    Legal Proceedings
Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company in the ordinary course of business. While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that MSCI’s business, operating results, financial condition or cash flows in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are currently pending or asserted will not, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.
Item 1A.    Risk Factors
For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for fiscal year ended December 31, 2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
There have been no material changes to the significant risk factors and uncertainties known to the Company and disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2021, as amended by the revisions disclosed in the Company’s Form 10-Q for the quarter ended March 31, 2022, that, if they were to materialize or occur, would, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the three months ended September 30, 2022.
The table below presents information with respect to purchases made by or on behalf of the Company of its shares of common stock during the three months ended September 30, 2022.
Issuer Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased(1)
Average Price
Paid
Per Share
Total
Number of
Shares
Purchased
As Part of
Publicly
Announced
Plans
or Programs
Approximate
Dollar
Value of Shares
that May Yet
Be
Purchased
Under
the Plans or
Programs(2)
July 1, 2022-July 31, 20229,812 $422.04 1,000 $1,539,148,000 
August 1, 2022-August 31, 202260 $453.04 — $1,539,148,000 
September 1, 2022-September 30, 2022381,986 $431.02 381,986 $1,374,507,000 
Total391,858 $430.80 382,986 $1,374,507,000 
___________________________
(1)Includes (i) shares purchased by the Company on the open market under the stock repurchase program; (ii) shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying restricted stock units; and (iii) shares held in treasury under the MSCI Inc. Non-Employee Directors Deferral Plan. The value of shares withheld to satisfy tax withholding obligations was determined using the fair market value of the Company’s common stock on the date of withholding, using a valuation methodology established by the Company.
(2)See Note 10, “Shareholders’ Equity (Deficit),” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding our stock repurchase program.
Item 5.    Other Information
On October 21, 2022, MSCI Inc., its subsidiary MSCI Limited (together with MSCI Inc., “MSCI”) and BlackRock Fund Advisors (the “Licensee”), entered into an Index License Agreement for Exchange Trade Funds (the “Index License Agreement”) which terminates and replaces (i) the Index License Agreement for Funds by and between MSCI Inc. and the Licensee, dated as of March 18, 2000, as amended (the “U.S. ETF Agreement”), (ii) the Index License Agreement for Funds by and between MSCI Inc. and BlackRock Institutional Trust Company, N.A., dated as of May 18, 2001, as amended (the “Non-U.S. ETF Agreement”) and (iii) all
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prior related schedules, exhibits, addenda, amendments and other attachments or modifications to each of the U.S. ETF Agreement and the Non-U.S. ETF Agreement.
The Index License Agreement consolidates the U.S. ETF Agreement and the Non-U.S. ETF Agreement, incorporates current license fee models and other commercial terms and updates customary payment and reporting terms and conditions. The impact of the changes embodied in the Index License Agreement on the operating revenues of the Company attributable to BlackRock, if any, is expected to be insignificant. The Index License Agreement is effective as of October 1, 2022 until March 31, 2030 and, thereafter, is subject to auto-renewal for successive three-year periods unless MSCI or the Licensee provides written notice of termination prior to the end of the then-current term. Pursuant to the Index License Agreement, MSCI will continue to license to the Licensee the right to use certain MSCI indexes as the basis of exchange traded funds (each, a “Fund” and together, the “Funds”), and the Licensee will continue to pay MSCI periodic license fees calculated based on the amount of assets under management for the particular Fund during the relevant license period.
On August 12, 2022, BlackRock filed a Form 13F-HR with the SEC disclosing that it exercises investment discretion over 6,555,290 shares of the Company’s common stock, par value $0.01 (“Common Stock”) as of June 30, 2022, or 8.1% of the Company’s outstanding Common Stock based on the total number of shares of Common Stock as of June 30, 2022.
The foregoing description of the Index License Agreement does not purport to be complete and is qualified in its entirety by reference to the Index License Agreement, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 and incorporated herein by reference.
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Item 6.    Exhibits
EXHIBIT INDEX
Exhibit
Number
Description
3.1
3.2
10.1*†
11Statement Re: Computation of Earnings Per Common Share (The calculation of per share earnings is in Part I, Item 1, Note 4 to the Condensed Consolidated Financial Statements (Earnings Per Common Share) and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K)
*31.1
*31.2
**32.1
*101.INSInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCHInline XBRL Taxonomy Extension Schema Document
*101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
*101.LABInline XBRL Taxonomy Extension Label Linkbase Document
*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
*101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
*104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
___________________________
*Filed herewith.
**Furnished herewith.
Certain confidential portions of this Exhibit have been omitted pursuant to Item 601(b) of Regulation S-K because the identified confidential portions (i) are not material and (ii) are of the type that the Company treats as private or confidential. The Company agrees to furnish an unredacted copy of this exhibit to the Securities and Exchange Commission upon its request.
    
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: October 25, 2022
MSCI INC.
(Registrant)
By:/s/ Andrew C. Wiechmann
Andrew C. Wiechmann
Chief Financial Officer
(Principal Financial Officer)
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