NEW YORK--(BUSINESS WIRE)--MSCI Inc. (NYSE: MSCI), a leading provider of critical decision support tools and services for the global investment community, today announced its financial results for the three months ended June 30, 2020 and six months ended June 30, 2020.

Financial and Operational Highlights for Second Quarter 2020

(Note: Percentage and other changes are relative to the three months ended June 30, 2019 (“second quarter 2019”) unless otherwise noted).

• Operating revenues of $409.6 million, up 6.2%
• Recurring subscription revenues up 7.2%; Asset-based fees up 0.4%; Non-recurring revenues up 34.4%
• Operating margin of 52.5%; Adjusted EBITDA margin of 57.8%
• Diluted EPS of $1.36, down 7.5%; Adjusted EPS of $1.77, up 14.9%
• New recurring subscription sales growth of 15.5%; Organic subscription Run Rate growth of 9.7%; Retention Rate of 93.5%
• Board of Directors approved a 14.7% increase to quarterly dividend to $0.78 per share payable in 3Q2020; payout ratio target maintained at a range of 40% to 50% of Adjusted EPS
• $88.0 million returned to shareholders in second quarter 2020 through a combination of share repurchases and dividends

“MSCI delivered solid results in the second quarter despite the ongoing challenging macroeconomic environment. I am especially pleased with our ability to drive double-digit new recurring subscription sales growth and our focused execution of MSCI’s long-term growth strategy,” said Henry A. Fernandez, Chairman and CEO of MSCI.

“Our team continues to partner with our clients in new and broader ways. As we enter the second half of 2020, we remain very well positioned to help our clients address increasing investment complexity and risk with our content, analytics and technology applications,” added Mr. Fernandez.

Second Quarter Consolidated Results

Operating Revenues: Operating revenues were $409.6 million, up 6.2%. The $24.1 million increase was driven by $20.8 million in higher recurring subscription revenues, $3.0 million in additional non-recurring revenues, and $0.3 million in increased asset-based fees.

Run Rate and Retention Rate: Total Run Rate at June 30, 2020 was $1,647.3 million, up 8.5% compared to June 30, 2019. The $129.6 million increase was driven by a $112.7 million increase in recurring subscription Run Rate and a $16.9 million increase in asset-based fees Run Rate. Organic subscription Run Rate growth was 9.7%, driven by increases across all three reporting segments. Retention Rate was 93.5%, compared to 95.5% in second quarter 2019.

Expenses: Total operating expenses were $194.4 million, essentially flat from second quarter 2019. Adjusted EBITDA expenses were $172.9 million, essentially flat, driven by lower non-compensation costs, primarily due to lower travel and entertainment expense, principally offset by higher compensation costs. Both total operating expenses and Adjusted EBITDA expenses benefited from the impact of foreign currency exchange rate fluctuations. Total operating expenses excluding the impact of foreign currency exchange rate fluctuations (“ex-FX”) and adjusted EBITDA expenses ex-FX increased 2.7% and 1.7%, respectively.

Headcount: As of June 30, 2020, headcount was 3,513 employees, with approximately 36% and approximately 64% of employees located in developed market and emerging market locations, respectively.

Other Expense (Income), Net: Other expense (income), net was $76.0 million, up $43.4 million, or 132.9%. The increase was primarily driven by the loss on debt extinguishment associated with the pre-maturity redemption of the $800.0 million aggregate principal amount of the Company’s 5.750% senior unsecured notes due 2025 (the “2025 Senior Notes Redemption”). In addition, the increase reflects higher interest expense associated with the higher debt balance for second quarter 2020 compared to second quarter 2019, as well as lower interest income due to lower rates earned on cash balances. The loss on debt extinguishment associated with the 2025 Senior Notes Redemption was excluded from adjusted net income and adjusted EPS for second quarter 2020.

Income Taxes: The effective tax rate was 17.3% in second quarter 2020, compared to 21.3% in second quarter 2019. The decline was primarily due to the income tax benefit related to the loss on debt extinguishment associated with the 2025 Senior Notes Redemption in second quarter 2020, a higher income tax benefit related to the conversion of equity awards and a beneficial jurisdictional mix of earnings.

Net Income: As a result of the factors described above, net income was $115.1 million, down 8.4%.

Adjusted EBITDA: Adjusted EBITDA was $236.7 million, up 11.8%. Adjusted EBITDA margin in second quarter 2020 was 57.8%, compared to 54.9% in second quarter 2019.

ndex operating revenues for second quarter 2020 were $242.9 million, up 7.7%. The $17.4 million increase was driven by $13.3 million in higher recurring subscription revenues, $3.8 million in higher non-recurring revenues, and $0.3 million in higher asset-based fees.

The increase in recurring subscription revenues was primarily driven by strong growth in core products and factor and ESG/Climate index products. The increase in non-recurring revenues was primarily driven by the recording of additional license fees from prior periods.

Asset-based fees were essentially flat driven by increases from exchange traded futures and options contracts based on MSCI indexes and non-ETF indexed funds linked to MSCI indexes, offset by a decrease in asset-based fees from exchange traded funds (“ETFs”) linked to MSCI indexes due to a decrease in average AUM and by the impact of a change in product mix.

Index Run Rate as of June 30, 2020 was $948.9 million, up 8.2%. The $72.2 million increase was driven by a $55.3 million increase in recurring subscription Run Rate and a $16.9 million increase in asset-based fees Run Rate. The increase in recurring subscription Run Rate, was primarily driven by strong growth in core products, custom and specialized index products and factor and ESG/Climate index products, with growth across all regions and all client segments. The increase in asset-based fees Run Rate, was driven by higher volume in futures and options, higher non-ETF indexed funds linked to MSCI indexes and by higher AUM in equity ETFs linked to MSCI indexes.All Other operating revenues for second quarter 2020 were $39.1 million, up 7.8%. The $2.8 million increase was driven by $4.9 million of higher ESG operating revenues, driven by higher contributions from Ratings, Climate and Screening products, partially offset by $2.1 million of lower Real Estate operating revenues, reflecting lower contributions from Enterprise Analytics products and negative foreign currency fluctuations. Total ESG operating revenues were $26.3 million and total Real Estate operating revenues were $12.8 million. All Other organic operating revenue growth was 9.2%, including ESG organic operating revenue growth of 23.0% and a Real Estate organic operating revenue decline of 10.7%.

All Other Run Rate as of June 30, 2020 was $164.4 million, up 19.9%. The $27.3 million increase was driven by a $24.8 million increase in ESG Run Rate, primarily driven by strong growth in Ratings, Climate and Screening products. Real Estate Run Rate increased $2.5 million, primarily driven by growth in Global Intel products. All Other organic subscription Run Rate growth was 19.8%, with ESG organic subscription Run Rate growth of 26.5% and Real Estate organic subscription Run Rate growth of 7.5%.

Select Balance Sheet Items and Capital Allocation

Cash Balances and Outstanding Debt: Cash and cash equivalents was $1.4 billion as of June 30, 2020. MSCI typically seeks to maintain minimum cash balances globally of approximately $200.0 million to $250.0 million for general operating purposes but may maintain higher minimum cash balances while the COVID-19 pandemic continues to impact global economic markets.

Total outstanding debt as of June 30, 2020 was $3.4 billion. The total debt to net income ratio (based on trailing twelve months net income) was 6.4x. The total debt to adjusted EBITDA ratio (based on trailing twelve months adjusted EBITDA) was 3.7x.

MSCI seeks to maintain a gross leverage to adjusted EBITDA target range of 3.0x to 3.5x.

Capex and Cash Flow: For second quarter 2020, Capex was $11.5 million, cash provided by operating activities was $262.6 million, up 38.6%, and free cash flow was $251.1 million, up 41.8%.

Share Count and Share Repurchases: Weighted average diluted shares outstanding were 84.3 million in second quarter 2020, down 1.2% year-over-year. In second quarter 2020, a total of 0.1 million shares were repurchased at an average price of $273.77 per share for a total value of $31.1 million. A total of $1.1 billion of outstanding share repurchase authorization remains as of July 28, 2020. Total shares outstanding as of June 30, 2020 were 83.6 million.

Dividends: Approximately $56.9 million in dividends were paid to shareholders in second quarter 2020. On July 27, 2020, the MSCI Board of Directors declared a cash dividend of $0.78 per share for third quarter 2020, payable on August 31, 2020 to shareholders of record as of the close of trading on August 14, 2020.

Full-Year 2020 Guidance

MSCI's guidance for 2020 is based on assumptions about a number of macroeconomic and capital market factors, in particular related to equity markets. These assumptions are subject to uncertainty, and actual results for the year could differ materially from our current guidance, including as a result of ongoing uncertainty related to the duration, magnitude and impact of the COVID-19 pandemic.

• Operating expense is still expected to be in the range of $790 million to $840 million.

• Adjusted EBITDA expense is still expected to be in the range of $700 million to $750 million.

• Interest expense, including the amortization of financing fees, is still expected to be approximately $158 million. Interest income will continue to be impacted by the lower rates available on cash balances.

• Depreciation and amortization expense is still expected to be approximately $90 million.

• The effective tax rate is now expected to be in the range of 16% to 19% (revised).

• Capex is still expected to be in the range of $50 million to $60 million.

• Net cash provided by operating activities and free cash flow are still expected to be in the ranges of $600 million to $650 million and $540 million to $600 million, respectively, in both cases now toward the upper end of the range.

About MSCI Inc.

MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 45 years of expertise in research, data and technology, we power better investment decisions by enabling clients to understand and analyze key drivers of risk and return and confidently build more effective portfolios. We create industry-leading, research-enhanced solutions that clients use to gain insight into and improve transparency across the investment process.

To learn more, please visit www.msci.com. MSCI#IR