Market Overview

MSCI Reports Financial Results for Second Quarter and Six Months 2018

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MSCI Inc. (NYSE:MSCI), a leading provider of indexes and portfolio
construction and risk management tools and services for global
investors, today announced results for the three months ended June 30,
2018 ("second quarter 2018") and six months ended June 30, 2018 ("six
months 2018").

Financial and Operational Highlights for Second Quarter 2018
(Notes:
Percentage and other changes refer to second quarter 2017 unless
otherwise noted.)

  • Operating revenues up 14.9%; recurring subscription revenues up
    10.0%; asset-based fees up 30.4%.
  • Diluted EPS of $1.28, up 43.8%; Adjusted EPS of $1.30, up 36.8%.
  • Quarter‐end AUM of $744.7 billion in ETFs linked to MSCI indexes;
    up 19.3% compared to prior year. AUM of $763.0 billion as of July 31,
    2018.
  • Total Run Rate up 12.0% to $1,411.7 million, driven by asset-based
    fees Run Rate, up 21.4%, and subscription Run Rate, up 9.5%. Organic
    subscription Run Rate growth was 10.2%.
  • Continued strong retention with total Retention Rate at 94.1%.
  • Board of Directors ("Board") approved a 52.6% increase to quarterly
    dividend to $0.58 per share payable in the third quarter; payout ratio
    target increased to a range of 40% to 50% of Adjusted EPS.
  • Issued $500 million of senior unsecured notes due 2027, bringing
    total cash to $1.4 billion.
       
Three Months Ended Six Months Ended
June 30,     June 30,     Mar. 31,     YoY % June 30,     June 30,     YoY %
In thousands, except per share data 2018 2017 2018 Change 2018 2017 Change
Operating revenues $ 363,046 $ 316,089 $ 351,316 14.9 % $ 714,362 $ 617,296 15.7 %
Operating income $ 173,511 $ 146,100 $ 167,166 18.8 % $ 340,677 $ 276,832 23.1 %
Operating margin % 47.8 % 46.2 % 47.6 % 47.7 % 44.8 %
 
Net income $ 116,829 $ 81,266 $ 115,092 43.8 % $ 231,921 $ 154,217 50.4 %
 
Diluted EPS $ 1.28 $ 0.89 $ 1.24 43.8 % $ 2.52 $ 1.68 50.0 %
Adjusted EPS $ 1.30 $ 0.95 $ 1.31 36.8 % $ 2.61 $ 1.83 42.6 %
 
Adjusted EBITDA $ 200,425 $ 166,381 $ 186,708 20.5 % $ 387,134 $ 317,202 22.0 %
Adjusted EBITDA margin % 55.2 % 52.6 % 53.1 % 54.2 % 51.4 %
 

"In a dynamic and evolving investment industry, our value proposition to
our clients and the strength of our franchise is as strong as ever. We
are driving momentum in our key client segments such as asset owners,
asset managers, wealth managers and broker dealers.

Our focus on enhancing our go-to-market strategy and more closely
engaging with our clients helped us deliver exceptional gross sales and
strong recurring net new sales for the first half of 2018. Our strong
second quarter results reinforce our conviction in the strategic bets we
have taken to deliver a more client-centric company," commented Henry A.
Fernandez, Chairman and CEO of MSCI.

Second Quarter 2018 Consolidated Results

Revenues:
Operating revenues for second quarter 2018 increased $47.0 million, or
14.9%, to $363.0 million, compared to $316.1 million for the three
months ended June 30, 2017 ("second quarter 2017"). The $47.0 million
increase in operating revenues was driven by a $20.4 million, or 30.4%,
increase in asset-based fees (which itself was driven by strong growth
across all types of index-linked investment products, including an
increase in revenue from exchange traded funds ("ETFs") linked to MSCI
indexes), and a $24.3 million, or 10.0%, increase in recurring
subscriptions (driven primarily by a $14.0 million, or 13.2%, increase
in Index products and a $5.5 million, or 4.9%, increase in Analytics
products). Adjusting for the impact from foreign currency exchange rate
fluctuations ("ex-FX") in second quarter 2018, operating revenues
increased 14.5%, recurring subscription revenues increased 9.7% and
asset-based fees increased 30.3%. Asset-based fees ex-FX does not adjust
for the impact from foreign currency exchange rate fluctuations on the
underlying assets under management ("AUM").

For six months 2018, operating revenues increased $97.1 million, or
15.7%, to $714.4 million, compared to $617.3 million for the six months
ended June 30, 2017 ("six months 2017"). The $97.1 million increase was
driven by a $48.4 million, or 38.8%, increase in asset-based fees and a
$47.0 million, or 9.8%, increase in recurring subscriptions. For six
months 2018, operating revenues ex-FX increased 15.3%, recurring
subscription revenues ex-FX increased 9.2% and asset-based fees ex-FX
increased 38.7%.

Run Rate: Total
Run Rate at June 30, 2018 grew by $151.4 million, or 12.0%, to $1,411.7
million, compared to June 30, 2017. The $151.4 million increase was
driven by a $93.7 million, or 9.5%, increase in subscription Run Rate to
$1,084.4 million, and a $57.7 million, or 21.4%, increase in asset-based
fees Run Rate to $327.3 million. Organic subscription Run Rate growth
was 10.2% in second quarter 2018 driven by strong growth in the Index
and ESG segments and in the Analytics segment's Multi-Asset Class and
Equity Analytics products. Retention Rate was 94.1% in second quarter
2018 compared to 94.9% in second quarter 2017.

Expenses: Total
operating expenses for second quarter 2018 increased $19.5 million, or
11.5%, to $189.5 million compared to second quarter 2017, driven by a
$7.9 million non-cash charge related to the write-off of the IPD
tradename used by the Real Estate segment, reflecting the rebranding of
the product line as MSCI Real Estate to better leverage and incorporate
it into global company initiatives. In addition, compensation and
benefits costs increased $8.5 million, or 7.9%, on higher salaries,
incentive compensation, severance and benefits, and non-compensation
costs increased $4.4 million, or 10.4%, primarily on higher non-income
tax costs, professional fees, occupancy expenses and marketing costs.
Adjusted EBITDA expenses for second quarter 2018 increased $12.9
million, or 8.6%, to $162.6 million compared to second quarter 2017.
Total operating expenses ex-FX and adjusted EBITDA expenses ex-FX for
second quarter 2018 increased 10.3% and 7.4%, respectively, compared to
second quarter 2017.

For six months 2018, total operating expenses increased $33.2 million,
or 9.8%, to $373.7 million. Adjusted EBITDA expenses increased $27.1
million, or 9.0%, to $327.2 million compared to six months 2017. Total
operating expenses and adjusted EBITDA expenses ex-FX for six months
2018 increased 7.5% and 6.6%, respectively, compared to six months 2017.

Headcount: As
of June 30, 2018, there were 3,062 employees, up 3.1% from 2,970 as of
June 30, 2017, and almost flat compared to 3,059 employees as of March
31, 2018. The 3.1% year-over-year increase in employees was primarily
driven by increased headcount in emerging market centers and in areas
related to data and content services, technology and research. As of
June 30, 2018, a total of 40% and 60% of employees were located in
developed market and emerging market centers, respectively, compared to
43% in developed market centers and 57% in emerging market centers as of
June 30, 2017.

Amortization and Depreciation Expenses:
Amortization and depreciation expenses of $26.9 million increased by
$6.6 million, or 32.7%, for second quarter 2018, compared to second
quarter 2017, primarily as a result of an $8.4 million, or 75.7%,
increase in amortization expense primarily reflecting a $7.9 million
non-cash charge in second quarter 2018 related to the write-off of the
IPD tradename used by the Real Estate segment as well as higher
amortization of internal capitalized software projects, partially offset
by lower amortization of acquired intangibles, and by a $1.8 million, or
19.5%, decrease in depreciation expense reflecting certain data center
assets becoming fully depreciated. For six months 2018, amortization and
depreciation expenses of $46.5 million increased by $6.1 million, or
15.1%, compared to six months 2017.

Other Expense (Income), Net:
Other expense (income), net was $17.2 million which decreased
$11.4 million, or 39.9%, for second quarter 2018, compared to second
quarter 2017, primarily as a result of the gain realized from the
divestiture of Financial Engineering Associates, Inc. ("FEA") on April
9, 2018. For six months 2018, other expense (income), net was $44.9
million which decreased $12.8 million, or 22.2%, compared to six months
2017.

Tax Rate:
Income tax expense was $39.5 million for second quarter 2018, compared
to $36.2 million for second quarter 2017. The effective tax rate was
25.3% and 30.8% for second quarter 2018 and second quarter 2017,
respectively. The decline largely reflected the impact of the Tax Cuts
and Jobs Act that was enacted on December 22, 2017 ("Tax Reform") and
the release of a valuation allowance previously recorded on capital loss
carry forwards utilized in second quarter 2018.

Income tax expense was $63.8 million for six months 2018, compared to
$64.9 million for six months 2017. The effective tax rate was 21.6% and
29.6% for six months 2018 and six months 2017, respectively. Six months
2018 included a benefit of $1.6 million relating to a revision of the
fourth quarter 2017 net charge of $34.5 million associated with taxes on
the amount of historical profits that were permanently reinvested
overseas. Excluding the $1.6 million benefit related to Tax Reform, the
six months 2018 adjusted tax rate was 22.1%.

The recorded cumulative net charge of $32.9 million for Tax Reform is a
provisional amount that reflects our reasonable estimate at this time
and is subject to adjustment during a measurement period not to exceed
one year from enactment in accordance with guidance from the Securities
and Exchange Commission. The net tax benefit of $1.6 million for Tax
Reform in six months 2018 was excluded from adjusted net income and
adjusted EPS consistent with the classification of the fourth quarter
2017 charge of $34.5 million. We expect that any future charges related
to Tax Reform resulting from interpretations related thereto, and
further guidance from regulatory agencies will continue to be excluded
from adjusted net income and adjusted EPS.

Net Income: Net
income increased 43.8% to $116.8 million in second quarter 2018, from
$81.3 million in second quarter 2017. For six months 2018, net income
increased 50.4% to $231.9 million, compared to $154.2 million for six
months 2017.

Adjusted EBITDA:
Adjusted EBITDA was $200.4 million in second quarter 2018, up $34.0
million, or 20.5%, from second quarter 2017. Adjusted EBITDA margin in
second quarter 2018 was 55.2%, compared to 52.6% in second quarter 2017.
For six months 2018, adjusted EBITDA was $387.1 million, up 22.0% from
six months 2017, and adjusted EBITDA margin was 54.2% for six months
2018, compared to 51.4% for six months 2017.

Cash Balances & Outstanding Debt:
Total cash and cash equivalents as of June 30, 2018 was $1,367.6
million. MSCI seeks to maintain minimum cash balances globally of
approximately $200.0 million to $250.0 million for general operating
purposes.

A private offering of $500.0 million aggregate principal amount of
5.375% Senior Notes due 2027 was completed during second quarter 2018
(the "2027 Notes Offering"). Total outstanding debt as of June 30, 2018
was $2,600.0 million, which excludes deferred financing fees of $26.3
million. Net debt, defined as total outstanding debt less cash and cash
equivalents, was $1,232.4 million at June 30, 2018. The total debt to
operating income ratio (based on trailing twelve months operating
income) was 4.0x. The total debt to adjusted EBITDA ratio (based on
trailing twelve months adjusted EBITDA) was 3.6x, which is slightly
above the stated gross leverage to adjusted EBITDA targeted range of
3.0x to 3.5x.

Cash Flow & Capex:
Net cash provided by operating activities was $207.2 million in second
quarter 2018, compared to $122.2 million in second quarter 2017 and
$88.6 million in first quarter 2018. Capex for second quarter 2018 was
$7.2 million, compared to $7.0 million in second quarter 2017 and $5.9
million in first quarter 2018. Free cash flow was $200.0 million in
second quarter 2018, compared to $115.2 million in second quarter 2017
and $82.7 million in first quarter 2018. The increase in net cash
provided by operating activities and free cash flow, compared to first
quarter 2018, was driven by lower cash expenses (primarily related to
the impact of the annual cash incentives paid in the first quarter),
higher cash collections and lower scheduled interest payments, partially
offset by higher income tax payments. The increase in net cash provided
by operating activities and free cash flows, compared to second quarter
2017, was primarily driven by increased cash collections, partially
offset by higher income tax payments.

Net cash provided by operating activities was $295.8 million for six
months 2018, compared to $159.2 million for six months 2017. Capex for
six months 2018 was $13.1 million, compared to $16.7 million for six
months 2017. Free cash flow was $282.7 million for six months 2018,
compared to $142.6 million for six months 2017. The increase in both net
cash provided by operating activities and free cash flow for six months
2018 compared to the same period of the prior year was primarily driven
by higher cash collections, partially offset by higher payments of cash
expenses and higher income tax payments.

Share Count & Capital Return:
The weighted average diluted shares outstanding in second quarter 2018
declined 0.1% to 91.6 million, compared to 91.7 million in second
quarter 2017. In second quarter 2018 MSCI repurchased 1.0 million shares
at an average price of $148.52 per share for a total value of $154.9
million. A total of $1.5 billion remains on the outstanding share
repurchase authorization as of July 27, 2018. Total shares outstanding
as of June 30, 2018 was 88.8 million.

On July 31, 2018, the Board declared a cash dividend of $0.58 per share
for third quarter 2018, representing an increase of 52.6% from $0.38 per
share in the previous quarter. The third quarter 2018 dividend is
payable on August 31, 2018 to shareholders of record as of the close of
trading on August 17, 2018.

Table 1: Second Quarter 2018 Results by Segment (unaudited)

         
Index Analytics All Other
    Adjusted     Adjusted     Adjusted
Operating Adjusted EBITDA Operating Adjusted EBITDA Operating Adjusted EBITDA
In thousands Revenues EBITDA Margin Revenues EBITDA Margin Revenues EBITDA Margin
Q2'18 $ 212,934 $ 157,516 74.0 % $ 119,119 $ 36,327 30.5 % $ 30,993 $ 6,582 21.2 %
Q2'17 $ 177,156 $ 129,519 73.1 % $ 113,367 $ 31,805 28.1 % $ 25,566 $ 5,057 19.8 %
Q1'18 $ 201,913 $ 145,929 72.3 % $ 118,987 $ 33,593 28.2 % $ 30,415 $ 7,187 23.6 %
YoY % change 20.2 % 21.6 % 5.1 % 14.2 % 21.2 % 30.2 %
 
YTD 2018 $ 414,848 $ 303,446 73.1 % $ 238,106 $ 69,920 29.4 % $ 61,408 $ 13,768 22.4 %
YTD 2017 $ 340,591 $ 245,196 72.0 % $ 225,787 $ 61,405 27.2 % $ 50,918 $ 10,601 20.8 %
% change   21.8 %   23.8 %     5.5 %   13.9 %     20.6 %   29.9 %  
 

Index Segment:
Operating revenues for second quarter 2018 increased $35.8 million,
or 20.2%, to $212.9 million, compared to $177.2 million for second
quarter 2017. The $35.8 million increase was primarily driven by a $20.4
million, or 30.4%, increase in asset-based fees, and a $14.0 million, or
13.2%, increase in recurring subscriptions.

The $20.4 million increase in asset-based fees was driven by strong
growth across all types of index-linked investment products. A $13.0
million, or 28.4%, increase in revenue from ETFs linked to MSCI indexes
was driven by a 30.5% increase in average AUM, partially offset by the
impact of a change in product mix. A $7.1 million, or 39.3%, increase in
revenue from non-ETF passive products was driven by higher AUM and an
increased contribution from higher-fee products. In addition, revenues
from exchange traded futures and options contracts based on MSCI indexes
grew $0.3 million, or 9.1%, driven, in part, by an increase in total
trading volumes.

The $14.0 million increase in recurring subscriptions was driven by
growth in core products and strong growth in factor and ESG indexes and
custom and specialized index products. The adjusted EBITDA margin for
Index was 74.0% for second quarter 2018, compared to 73.1% for second
quarter 2017.

Operating revenues for six months 2018 increased $74.3 million, or
21.8%, to $414.8 million, compared to $340.6 million for six months
2017. The $74.3 million increase was driven by a $48.4 million, or
38.8%, increase in asset-based fees, a $25.0 million, or 12.0%, increase
in recurring subscriptions, and a $0.9 million, or 10.8%, increase in
non-recurring revenues. The adjusted EBITDA margin for Index was 73.1%
for six months 2018, compared to 72.0% for six months 2017.

Index Run Rate at June 30, 2018 grew by $107.8 million, or 15.4%, to
$805.7 million, compared to June 30, 2017. The $107.8 million increase
was driven by a $57.7 million, or 21.4%, increase in asset-based fees
Run Rate, primarily driven by higher AUM in ETFs linked to MSCI indexes,
as well as increases in non-ETF passive funds and futures and options
contracts, also linked to MSCI indexes, and a $50.1 million, or 11.7%,
increase in recurring subscriptions Run Rate. Partially offsetting the
impact of the increase in AUM in ETFs linked to MSCI indexes was a
change in product mix which was the primary driver of a decline in
average basis point fees to 2.96 at June 30, 2018 from 3.07 a year ago.
The 11.7% increase in Index recurring subscriptions Run Rate was driven
by growth in core products, factor and ESG indexes and custom and
specialized index products and strong growth in the wealth management,
asset owners, banking and trading and hedge fund client segments.

Analytics Segment:
Operating revenues for second quarter 2018 increased $5.8 million,
or 5.1%, to $119.1 million, compared to $113.4 million for second
quarter 2017, primarily driven by growth in both Equity and Multi-Asset
Class Analytics products and the timing of client implementations.
Operating revenues ex-FX increased 4.9%. Operating revenues ex-FX and
excluding the impact of the divestiture of FEA increased 6.6%.

The adjusted EBITDA margin for Analytics was 30.5% for second quarter
2018, compared to 28.1% for second quarter 2017.

Operating revenues for six months 2018 increased $12.3 million, or 5.5%,
to $238.1 million, compared to $225.8 million for six months 2017.
Operating revenues ex-FX increased 5.3%. Operating revenues ex-FX and
excluding the impact of the divestiture of FEA increased 5.6%. The
adjusted EBITDA margin for Analytics was 29.4% for six months 2018,
compared to 27.2% for six months 2017.

Analytics Run Rate at June 30, 2018 grew by $24.6 million, or 5.3%, to
$490.0 million, compared to June 30, 2017, primarily driven by growth in
both Multi-Asset Class and Equity Analytics products. Analytics Organic
Run Rate growth was 7.0% compared to June 30, 2017.

All Other Segment:
Operating revenues for second quarter 2018 increased $5.4 million,
or 21.2%, to $31.0 million, compared to $25.6 million for second quarter
2017. The increase in All Other revenues was driven by a $3.6 million,
or 26.2%, increase in ESG revenues to $17.3 million, and a $1.8 million,
or 15.5%, increase in Real Estate revenues to $13.7 million. The
increase in ESG revenues was driven by strong growth in ESG Ratings
product revenues, which benefited from increased investments. The
increase in Real Estate revenues was primarily driven by growth in
Portfolio Analysis Service products and Market Information products.
Second quarter 2018 Real Estate revenues ex-FX increased 9.5% and All
Other operating revenues ex-FX increased 18.3%. The adjusted EBITDA
margin for All Other was 21.2% for second quarter 2018, compared to
19.8% for second quarter 2017.

Operating revenues for six months 2018 increased $10.5 million, or
20.6%, to $61.4 million, compared to $50.9 million for six months 2017.
The increase in All Other revenues was driven by a $7.5 million, or
28.5%, increase in ESG revenues to $33.7 million, and a $3.0 million, or
12.2%, increase in Real Estate revenues to $27.7 million. Operating
revenues ex-FX for six months 2018 for Real Estate increased 4.1% and
All Other operating revenues increased 16.5%. The adjusted EBITDA margin
for All Other was 22.4% for six months 2018, compared to 20.8% for six
months 2017.

All Other Run Rate at June 30, 2018 grew by $19.0 million, or 19.5%, to
$116.0 million, compared to June 30, 2017. The $19.0 million increase
was primarily driven by a $15.9 million, or 28.7%, increase in ESG Run
Rate to $71.5 million, and a $3.0 million, or 7.3%, increase in Real
Estate Run Rate to $44.5 million. The increase in ESG Run Rate was
primarily driven by strong growth in ESG Ratings products and an
increase in ESG Screening products. The increase in Real Estate Run Rate
was primarily driven by growth in Market Information products and
Portfolio Analysis Service products. ESG Run Rate ex-FX increased 28.3%,
Real Estate Run Rate ex-FX increased 6.7% and All Other Run Rate ex-FX
increased 19.1%, each compared to June 30, 2017.

Full-Year 2018 Guidance

MSCI's guidance for full-year 2018 remains as follows:

  • Total operating expenses are expected to be in the range of $725
    million to $750 million.
  • Adjusted EBITDA expenses are expected to be in the range of $645
    million to $665 million.
  • As previously disclosed in connection with the completion of the 2027
    Notes Offering on May 18, 2018, interest expense, including the
    amortization of financing fees, is now expected to be approximately
    $133 million, assuming no additional financings.
  • Capex is expected to be in the range of $40 million to $50 million.
  • Net cash provided by operating activities and free cash flow is
    expected to be in the range of $490 million to $540 million and $440
    million to $500 million, respectively.
  • The effective tax rate is expected to be in the range of 21% to 24%.
    This full-year effective tax rate range includes an expected windfall
    tax benefit related to stock-based compensation of approximately $8.2
    million, of which $7.5 million was realized in first quarter 2018.
    Further information is expected to be released that may impact the
    Company's current interpretation and application of Tax Reform, which
    may result in a change to our full-year guidance in subsequent periods.

The guidance provided above assumes, among other things, that MSCI
maintains its current debt levels.

In addition, we are also increasing our dividend payout ratio target to
a range of 40% to 50% percent of adjusted EPS, from a previous range of
30% to 40%.

New Revenue Standard Effective January 1, 2018

Effective January 1, 2018, MSCI adopted the new revenue standard using
the modified retrospective transition method. This resulted in a
cumulative adjustment to increase retained earnings on January 1, 2018
by $16.1 million, net of tax, reflecting future period revenue from
existing contracts under the old revenue standard that would have been
recognized in prior periods under the new revenue standard, and the
application of the provisions of the new standard prospectively.

Compared to the revenue recognition method used prior to 2018, the new
revenue standard will result in more revenue being recognized up-front
or earlier in the life of new contracts for certain products and
services, including fees related to the licensing of desktop
applications, implementation and set-up services and multi-year deals.
The lost future period revenue from existing contracts as a result of
the cumulative adjustment to retained earnings is expected to be largely
offset by the acceleration of revenue from certain new contracts. As a
result, the overall impact of adopting the new revenue standard is not
expected to have a material impact on MSCI's consolidated financial
statements or the annual trend of revenue. It is possible that some
increased quarterly revenue variability may exist by segment depending
on the timing of deal closings and renewals.

As a result of the adoption of the new revenue standard, MSCI recorded
$2.2 million of higher revenue in second quarter 2018 and $4.5 million
in six months 2018.

In addition, as a result of the adoption of the new revenue standard,
the amount of accounts receivable and deferred revenue reported on the
Company's balance sheet as of December 31, 2017 would have increased,
with no increase to net assets, by approximately $135.5 million.
Accounts receivable was $394.9 million at June 30, 2018 and $327.6
million at December 31, 2017. Deferred revenue was $483.2 million at
June 30, 2018 and $374.4 million at December 31, 2017. Under the old
revenue standard, MSCI only recorded the value of an invoice to accounts
receivable and deferred revenue once the service period began. Under the
new revenue standard, MSCI now records accounts receivable and a
corresponding offset to deferred revenue when an invoice is issued for a
non-cancellable, non-refundable contract, regardless of when the service
period begins.

There are no changes to how we calculate our operating metrics.

Conference Call Information

MSCI's senior management will review second quarter 2018 results on
Thursday, August 2, 2018 at 11:00 AM Eastern Time. To listen to the live
event, visit the events and presentations section of MSCI's Investor
Relations homepage, http://ir.msci.com/events.cfm,
or dial 1-877-376-9931 passcode: 9645878 within the United States.
International callers dial 1-629-228-0736 passcode: 9645878. This
earnings release and the related investor presentation used during the
conference call will be made available on MSCI's Investor Relations
homepage.

An audio recording of the conference call will be available on our
Investor Relations website, http://ir.msci.com/events.cfm,
beginning approximately two hours after the conclusion of the live
event. Through August 5, 2018, the recording will also be available by
dialing 1-855-859-2056 passcode: 9645878 within the United States or
1-404-537-3406 passcode: 9645878 for international callers. A replay of
the conference call will be archived in the events and presentations
section of MSCI's Investor Relations website for 12 months after the
call.

About MSCI

For more than 45 years, MSCI's research-based indexes and analytics have
helped the world's leading investors build and manage better portfolios.
Clients rely on our offerings for deeper insights into the drivers of
performance and risk in their portfolios, broad asset class coverage and
innovative research.

Our line of products and services includes indexes, analytical models,
data, real estate benchmarks and ESG research.

MSCI serves 99 of the top 100 largest money managers, according to the
most recent P&I ranking.

Total assets benchmarked to MSCI equity indexes is now over $13.9
trillion globally as of December 31, 2017.

For more information, visit us at www.msci.com.
MSCI#IR

Forward-Looking Statements

This earnings release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including without limitation, our full-year 2018 guidance. These
forward-looking statements relate to future events or to future
financial performance and involve known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or
implied by these statements. In some cases, you can identify
forward-looking statements by the use of words such as "may," "could,"
"expect," "intend," "plan," "seek," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," or the negative of these terms or
other comparable terminology. You should not place undue reliance on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors that are, in some cases, beyond our
control and that could materially affect our actual results, levels of
activity, performance or achievements.

Other factors that could materially affect actual results, levels of
activity, performance or achievements can be found in MSCI's Annual
Report on Form 10-K for the fiscal year ended December 31, 2017 filed
with the Securities and Exchange Commission ("SEC") on February 26, 2018
and in quarterly reports on Form 10-Q and current reports on Form 8-K
filed or furnished with the SEC (herein, referred to as "Public
Filings"). If any of these risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may vary
significantly from what MSCI projected. Any forward-looking statement in
this earnings release reflects MSCI's current views with respect to
future events and is subject to these and other risks, uncertainties and
assumptions relating to MSCI's operations, results of operations, growth
strategy and liquidity. MSCI assumes no obligation to publicly update or
revise these forward-looking statements for any reason, whether as a
result of new information, future events, or otherwise, except as
required by law.

Website and Social Media Disclosure

MSCI uses its website 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 MSCI when you enroll your email address by visiting
the "Email Alerts Subscription" section of MSCI's Investor Relations
homepage at http://ir.msci.com/alerts.cfm.
The contents of MSCI's website and social media channels are not,
however, incorporated by reference into this earnings release.

Notes Regarding the Use of Operating Metrics

MSCI has presented supplemental key operating metrics as part of this
earnings release, including Run Rate, subscription sales and
cancellations, non-recurring sales and Retention Rate.

Retention Rate for a period is calculated by annualizing the
cancellations for which we have received a notice of termination or for
which we believe there is an intention not to renew during the 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 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 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 reporting purposes, 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 segments, substantially all product
or service switches are treated as replacement products or services and
netted in this manner, while in our Index and Real Estate segments,
product or service switches that are treated as replacement products or
services and receive netting treatment occur only in certain limited
instances. In addition, we treat any reduction in fees resulting from a
down-sale of the same product or service as a cancellation to the extent
of the reduction.

This definition of Retention Rate has been revised to describe our
methodology for calculating cancellations. We believe this methodology
has been applied in all material respects in calculating cancellation
rates reported in the prior periods covered in our Form 10-K for the
year ended December 31, 2017 and in our Form 10-Q for the quarter ended
March 31, 2018, and accordingly, we do not believe changes to previously
reported cancellation rates are required. Beginning in second quarter
2018, "Aggregate Retention Rate" is referred to as "Retention Rate."

Run Rate estimates at a particular point in time the annualized value of
the recurring revenues under our client license agreements ("Client
Contracts") for the next 12 months, assuming all Client Contracts that
come up for renewal are renewed and assuming then-current currency
exchange rates, subject to the adjustments and exclusions described
elsewhere in our Public Filings. For any Client Contract where fees are
linked to an investment product's assets or trading volume/fees, the Run
Rate calculation reflects, for ETFs, the market value on the last
trading day of the period, for futures and options, the most recent
quarterly volumes and/or reported exchange fees, and for other non-ETF
products, the most recent client reported assets. Run Rate does not
include fees associated with "one-time" and other non-recurring
transactions. In addition, we add to Run Rate the annualized fee value
of recurring new sales, whether to existing or new clients, when we
execute Client Contracts, even though the license start date, and
associated revenue recognition, may not be effective until a later date.
We remove from Run Rate the annualized fee value associated with
products or services under any Client Contract with respect to which we
have received a notice of termination or non-renewal during the period
and have determined that such notice evidences the client's final
decision to terminate or not renew the applicable products or services,
even though such notice is not effective until a later date.

"Organic subscription Run Rate growth" is defined as the period over
period Run Rate growth, excluding the impact of changes in foreign
currency and the first year impact of any acquisitions. It is also
adjusted for divestitures. Changes in foreign currency are calculated by
applying the currency exchange rate from the comparable prior period to
current period foreign currency denominated Run Rate.

Notes Regarding the Use of Non-GAAP Financial Measures

MSCI has presented supplemental non-GAAP financial measures as part of
this earnings release. Reconciliations are provided in Tables 9 – 13
below that reconcile each non-GAAP financial measure with the most
comparable GAAP measure. The non-GAAP financial measures presented in
this earnings release should not be considered as alternative measures
for the most directly comparable GAAP financial measures. The non-GAAP
financial measures presented in this earnings release are used by
management to monitor the financial performance of the business, inform
business decision-making and forecast future results.

"Adjusted EBITDA" is defined as net income before (1) provision for
income taxes, (2) other expense (income), net, (3) depreciation and
amortization of property, equipment and leasehold improvements, (4)
amortization of intangible assets and, at times, (5) certain other
transactions or adjustments.

"Adjusted EBITDA expenses" is defined as operating expenses less
depreciation and amortization of property, equipment and leasehold
improvements and amortization of intangible assets and, at times,
certain other transactions or adjustments.

"Adjusted net income" and "adjusted EPS" are defined as net income and
diluted EPS, respectively, before the after-tax impact of the
amortization of acquired intangible assets, the impact of Tax Reform
adjustments and, at times, certain other transactions or adjustments.

"Adjusted tax rate" is defined as the effective tax rate excluding the
impact of Tax Reform.

"Capex" is defined as capital expenditures plus capitalized software
development costs.

"Free cash flow" is defined as net cash provided by operating
activities, less Capex.

We believe adjusted EBITDA and adjusted EBITDA expenses are meaningful
measures of the operating performance of MSCI because they adjust for
significant one-time, unusual or non-recurring items as well as
eliminate the accounting effects of capital spending and acquisitions
that do not directly affect what management considers to be our core
operating performance in the period.

We believe adjusted net income and adjusted EPS are meaningful measures
of the performance of MSCI because they adjust for the after-tax impact
of significant one-time, unusual or non-recurring items as well as
eliminate the accounting effects of acquisitions that do not directly
affect what management considers to be our core performance in the
period.

We believe that free cash flow is useful to investors because it relates
the operating cash flow of MSCI to the capital that is spent to continue
and improve business operations, such as investment in MSCI's existing
products. Further, free cash flow indicates our ability to strengthen
MSCI's balance sheet, repay our debt obligations, pay cash dividends and
repurchase shares of our common stock.

We believe that adjusted tax rate is useful to investors because it
increases the comparability of period-to-period results by adjusting for
the estimated net impact of Tax Reform.

We believe that the non-GAAP financial measures presented in this
earnings release facilitate meaningful period-to-period comparisons and
provide a baseline for the evaluation of future results.

Adjusted EBITDA expenses, adjusted EBITDA, adjusted net income, adjusted
EPS, adjusted tax rate, Capex and free cash flow are not defined in the
same manner by all companies and may not be comparable to
similarly-titled non-GAAP financial measures of other companies.

Notes Regarding Adjusting for the Impact of Foreign Currency Exchange
Rate Fluctuations

Foreign currency exchange rate fluctuations reflect the difference
between the current period results as reported compared to the current
period results recalculated using the foreign currency exchange rates in
effect for the comparable prior period. While operating revenues
adjusted for the impact of foreign currency fluctuations includes
asset-based fees that have been adjusted for the impact of foreign
currency fluctuations, the underlying AUM, which is the primary
component of asset-based fees, is not adjusted for foreign currency
fluctuations. Approximately two-thirds of the AUM are invested in
securities denominated in currencies other than the U.S. dollar, and
accordingly, any such impact is excluded from the disclosed foreign
currency adjusted variances.

     

Table 2: Condensed Consolidated Statements of Income (unaudited)

 
Three Months Ended Six Months Ended
June 30,   June 30,   Mar. 31, YoY % June 30,   June 30,   YoY %
In thousands, except per share data 2018 2017(2) 2018 Change 2018 2017(2) Change
Operating revenues $ 363,046 $ 316,089 $ 351,316 14.9 % $ 714,362 $ 617,296 15.7 %
Operating expenses:
Cost of revenues 71,368 68,538 71,304 4.1 % 142,672 136,001 4.9 %
Selling and marketing 47,416 41,550 46,409 14.1 % 93,825 84,522 11.0 %
Research and development 19,801 18,196 20,707 8.8 % 40,508 37,166 9.0 %
General and administrative 24,036 21,424 26,187 12.2 % 50,223 42,405 18.4 %
Amortization of intangible assets 19,537 11,122 11,338 75.7 % 30,875 22,373 38.0 %
Depreciation and amortization of property,
equipment and leasehold improvements   7,377   9,159   8,205 (19.5 %)   15,582   17,997 (13.4 %)
Total operating expenses(1)   189,535   169,989   184,150 11.5 %   373,685   340,464 9.8 %
 
Operating income 173,511 146,100 167,166 18.8 % 340,677 276,832 23.1 %
 
Interest income (4,281 ) (1,310 ) (2,770 ) 226.8 % (7,051 ) (2,242 ) 214.5 %
Interest expense 31,761 29,027 29,560 9.4 % 61,321 58,051 5.6 %
Other expense (income)   (10,292 )   872   938 n/m   (9,354 )   1,887 n/m
Other expense (income), net   17,188   28,589   27,728 (39.9 %)   44,916   57,696 (22.2 %)
 
Income before provision for income taxes 156,323 117,511 139,438 33.0 % 295,761 219,136 35.0 %
 
Provision for income taxes   39,494   36,245   24,346 9.0 %   63,840   64,919 (1.7 %)
Net income $ 116,829 $ 81,266 $ 115,092 43.8 % $ 231,921 $ 154,217 50.4 %
 
                   
Earnings per basic common share $ 1.31 $ 0.90 $ 1.28 45.6 % $ 2.59 $ 1.70 52.4 %
 
                   
Earnings per diluted common share $ 1.28 $ 0.89 $ 1.24 43.8 % $ 2.52 $ 1.68 50.0 %
 
Weighted average shares outstanding used
in computing earnings per share:
 
Basic   89,112   90,404   90,075 (1.4 %)   89,591   90,555 (1.1 %)
Diluted   91,585   91,708   92,587 (0.1 %)   92,083   91,665 0.5 %
 
(1) Includes stock-based compensation expense of $9.7 million, $9.5
million and $9.8 million for the three months ended Jun. 30, 2018,
Jun. 30, 2017 and Mar. 31, 2018, respectively. Includes stock-based
compensation expense of $19.5 million and $19.2 million for the six
months ended Jun. 30, 2018 and Jun. 30, 2017, respectively.

(2) As a result of the adoption of recent accounting guidance, the
Company has restated its Condensed Consolidated Statements of
Income by reclassifying $0.1 million and $0.3 million of
non-service related pension costs from Operating Expenses to Other
expense (income) for the three and six months ended Jun. 30, 2017,
respectively.

 

 

Table 3: Selected Balance Sheet Items (unaudited)

 
    As of
June 30,     Dec. 31,
In thousands 2018 2017
Cash and cash equivalents $1,367,596 $889,502
Accounts receivable, net of allowances(1) $394,886 $327,597
 
Deferred revenue(2) $483,229 $374,365
Long-term debt(3) $2,573,730 $2,078,093
 
(1) Accounts receivable, net of allowances would have been $473.4
million at Dec. 31, 2017 under the new revenue standard.
(2) Deferred revenue would have been $494.6 million at Dec. 31, 2017
under the new revenue standard.
(3) Consists of gross long-term debt, net of deferred financing
fees. Gross long-term debt at Jun. 30, 2018 and Dec. 31, 2017 was
$2.6 billion and $2.1 billion, respectively.
 
     

Table 4: Selected Cash Flow Items (unaudited)

 
Three Months Ended Six Months Ended
June 30,   June 30,   Mar. 31, June 30,   June 30,
In thousands 2018 2017 2018 2018 2017
Net cash provided by operating activities $ 207,165 $ 122,217 $ 88,597 $ 295,762 $ 159,232
Net cash provided by (used in) investing activities 13,805 (6,264 ) (5,872 ) 7,933 (15,893 )
Net cash provided by (used in) financing activities 304,416 (65,398 ) (126,058 ) 178,358 (190,624 )
Effect of exchange rate changes   (7,618 )   3,054   3,659   (3,959 )   6,032
Net increase (decrease) in cash and cash equivalents $ 517,768 $ 53,609 $ (39,674 ) $ 478,094 $ (41,253 )
 

       

Table 5: Operating Results by Segment and Revenue Type
(unaudited)

 
Index Three Months Ended Six Months Ended
June 30,     June 30,     Mar. 31,     YoY % June 30,   June 30,     YoY %
In thousands 2018 2017 2018 Change 2018 2017 Change
Operating revenues:
Recurring subscriptions $ 119,626 $ 105,645 $ 113,205 13.2 % $ 232,831 $ 207,823 12.0 %
Asset-based fees 87,636 67,230 85,483 30.4 % 173,119 124,738 38.8 %
Non-recurring   5,672   4,281   3,226 32.5 %   8,898   8,030 10.8 %
Total operating revenues 212,934 177,156 201,913 20.2 % 414,848 340,591 21.8 %
Adjusted EBITDA expenses   55,418   47,637   55,984 16.3 %   111,402   95,395 16.8 %
Adjusted EBITDA $ 157,516 $ 129,519 $ 145,929 21.6 % $ 303,446 $ 245,196 23.8 %
Adjusted EBITDA margin % 74.0 % 73.1 % 72.3 % 73.1 % 72.0 %
 
Analytics Three Months Ended Six Months Ended
June 30, June 30, Mar. 31, YoY % June 30, June 30, YoY %
In thousands 2018 2017 2018 Change 2018 2017 Change
Operating revenues:
Recurring subscriptions $ 117,528 $ 112,061 $ 118,244 4.9 % $ 235,772 $ 223,330 5.6 %
Non-recurring   1,591   1,306   744 21.8 %   2,334   2,457 (5.0 %)
Total operating revenues 119,119 113,367 118,987 5.1 % 238,106 225,787 5.5 %
Adjusted EBITDA expenses   82,792   81,562   85,395 1.5 %   168,186   164,382 2.3 %
Adjusted EBITDA $ 36,327 $ 31,805 $ 33,593 14.2 % $ 69,920 $ 61,405 13.9 %
Adjusted EBITDA margin % 30.5 % 28.1 % 28.2 % 29.4 % 27.2 %
 
All Other Three Months Ended Six Months Ended
June 30, June 30, Mar. 31, YoY % June 30, June 30, YoY %
In thousands 2018 2017 2018 Change 2018 2017 Change
Operating revenues:
Recurring subscriptions $ 29,584 $ 24,739 $ 29,367 19.6 % $ 58,951 $ 49,391 19.4 %
Non-recurring   1,409   827   1,048 70.4 %   2,457   1,527 60.9 %
Total operating revenues 30,993 25,566 30,415 21.2 % 61,408 50,918 20.6 %
Adjusted EBITDA expenses   24,411   20,509   23,228 19.0 %   47,640   40,317 18.2 %
Adjusted EBITDA $ 6,582 $ 5,057 $ 7,187 30.2 % $ 13,768 $ 10,601 29.9 %
Adjusted EBITDA margin % 21.2 % 19.8 % 23.6 % 22.4 % 20.8 %
 
Consolidated Three Months Ended Six Months Ended
June 30, June 30, Mar. 31, YoY % June 30, June 30, YoY %
In thousands 2018   2017   2018 Change 2018   2017 Change
Operating revenues:
Recurring subscriptions $ 266,738 $ 242,445 $ 260,815 10.0 % $ 527,554 $ 480,544 9.8 %
Asset-based fees 87,636 67,230 85,483 30.4 % 173,119 124,738 38.8 %
Non-recurring   8,672   6,414   5,018 35.2 %   13,689   12,014 13.9 %
Operating revenues total 363,046 316,089 351,316 14.9 % 714,362 617,296 15.7 %
Adjusted EBITDA expenses   162,621   149,708   164,607 8.6 %   327,228   300,094 9.0 %
Adjusted EBITDA $ 200,425 $ 166,381 $ 186,708 20.5 % $ 387,134 $ 317,202 22.0 %
Adjusted EBITDA margin % 55.2 % 52.6 % 53.1 % 54.2 % 51.4 %
Operating margin % 47.8 % 46.2 % 47.6 % 47.7 % 44.8 %
 

       

Table 6: Sales and Retention Rate by Segment (unaudited)

 
Three Months Ended Six Months Ended
June 30,     Mar. 31,     Dec. 31,     Sep. 30,     June 30, June 30,     June 30,
In thousands 2018 2018 2017 2017 2017 2018 2017
Index
New recurring subscription sales $ 20,906 $ 15,195 $ 17,980 $ 15,499 $ 13,636 $ 36,101 $ 27,829
Subscription cancellations   (4,577 )   (4,115 )   (6,180 )   (4,605 )   (3,045 )   (8,692 )   (6,210 )
Net new recurring subscription sales $ 16,329 $ 11,080 $ 11,800 $ 10,894 $ 10,591 $ 27,409 $ 21,619
Non-recurring sales $ 5,328 $ 3,459 $ 3,677 $ 3,704 $ 4,555 $ 8,787 $ 8,929
Total gross sales(1) $ 26,234 $ 18,654 $ 21,657 $ 19,203 $ 18,191 $ 44,888 $ 36,758
Total Index net sales $ 21,657 $ 14,539 $ 15,477 $ 14,598 $ 15,146 $ 36,196 $ 30,548
 
Index Retention Rate(2) 95.9 % 96.4 % 93.9 % 95.5 % 97.0 % 96.1 % 96.9 %
 
Analytics
New recurring subscription sales $ 17,395 $ 11,356 $ 25,217 $ 15,036 $ 12,050 $ 28,752 $ 23,924
Subscription cancellations   (9,452 )   (8,578 )   (11,679 )   (7,444 )   (6,940 )   (18,030 )   (14,551 )
Net new recurring subscription sales $ 7,943 $ 2,778 $ 13,538 $ 7,592 $ 5,110 $ 10,722 $ 9,373
Non-recurring sales $ 2,425 $ 1,346 $ 3,742 $ 2,792 $ 1,609 $ 3,770 $ 3,772
Total gross sales(1) $ 19,820 $ 12,702 $ 28,959 $ 17,828 $ 13,659 $ 32,522 $ 27,696
Total Analytics net sales $ 10,368 $ 4,124 $ 17,280 $ 10,384 $ 6,719 $ 14,492 $ 13,145
 
Analytics Retention Rate(2) 92.1 % 93.0 % 89.7 % 93.4 % 93.9 % 92.6 % 93.6 %
 
All Other
New recurring subscription sales $ 6,678 $ 5,468 $ 8,391 $ 4,576 $ 5,456 $ 12,146 $ 9,577
Subscription cancellations   (1,384 )   (1,531 )   (1,954 )   (2,050 )   (2,030 )   (2,915 )   (3,713 )
Net new recurring subscription sales $ 5,294 $ 3,937 $ 6,437 $ 2,526 $ 3,426 $ 9,231 $ 5,864
Non-recurring sales $ 909 $ 694 $ 1,479 $ 829 $ 958 $ 1,603 $ 1,567
Total gross sales(1) $ 7,587 $ 6,162 $ 9,870 $ 5,405 $ 6,414 $ 13,749 $ 11,144
Total All Other net sales $ 6,203 $ 4,631 $ 7,916 $ 3,355 $ 4,384 $ 10,834 $ 7,431
 
All Other Retention Rate(2) 94.9 % 94.4 % 91.1 % 90.7 % 90.8 % 94.6 % 91.6 %
 
Consolidated
New recurring subscription sales $ 44,979 $ 32,019 $ 51,588 $ 35,111 $ 31,142 $ 76,999 $ 61,330
Subscription cancellations   (15,413 )   (14,224 )   (19,813 )   (14,099 )   (12,015 )   (29,637 )   (24,474 )
Net new recurring subscription sales $ 29,566 $ 17,795 $ 31,775 $ 21,012 $ 19,127 $ 47,362 $ 36,856
Non-recurring sales $ 8,662 $ 5,499 $ 8,898 $ 7,325 $ 7,122 $ 14,160 $ 14,268
Total gross sales(1) $ 53,641 $ 37,518 $ 60,486 $ 42,436 $ 38,264 $ 91,159 $ 75,598
Total net sales $ 38,228 $ 23,294 $ 40,673 $ 28,337 $ 26,249 $ 61,522 $ 51,124
 
Total Retention Rate(2) 94.1 % 94.6 % 91.6 % 94.0 % 94.9 % 94.4 % 94.8 %
 
(1) Total gross sales equal new recurring subscription sales plus
non-recurring sales.
(2) See "Notes Regarding the Use of Operating Metrics" for details
regarding the definition of Retention Rate.
 

         

Table 7: AUM in ETFs Linked to MSCI Indexes (unaudited)(1)(2)

 
Three Months Ended Six Months Ended
June 30,     Mar. 31,     Dec. 31,       Sep. 30,       June 30, June 30,     June 30,
In billions 2018 2018 2017 2017 2017 2018 2017
Beginning Period AUM in ETFs linked to
MSCI indexes $ 764.9 $ 744.3 $ 674.3 $ 624.3 $ 555.7 $ 744.3 $ 481.4
Market Appreciation/(Depreciation) (19.4 ) (11.7 ) 32.0 32.2 23.6 (31.1 ) 59.4
Cash Inflows (0.8 ) 32.3 38.0 17.8 45.0 31.5 83.5
Period-End AUM in ETFs linked to                            
MSCI indexes $ 744.7 $ 764.9 $ 744.3 $ 674.3 $ 624.3 $ 744.7 $ 624.3
 
Period Average AUM in ETFs linked to
MSCI indexes $ 776.5 $ 779.5 $ 712.3 $ 654.4 $ 595.0 $ 778.0 $ 559.5
 
Avg. Basis Point Fee(3) 2.96 3.02 3.04 3.05 3.07 2.96 3.07
 

Source: Bloomberg and MSCI

(1) ETF assets under management calculation methodology is ETF net
asset value multiplied by shares outstanding.
(2) The AUM in ETFs numbers also include AUM in Exchange Traded
Notes, the value of which is less than 1.0% of the AUM amounts
presented.
(3) Based on period-end Run Rate for ETFs linked to MSCI Indexes
using period-end AUM.
AUM: Assets under management.
 
       

Table 8: Run Rate by Segment and Type (unaudited)(1)

 
As of
June 30,     June 30,     Mar. 31, YoY %
In thousands 2018 2017 2018 Change
Index
Recurring subscriptions $ 478,421 $ 428,367 $ 462,097 11.7 %
Asset-based fees   327,299   269,595   332,240 21.4 %
Index Run Rate   805,720   697,962   794,337 15.4 %
 
Analytics Run Rate   489,979   465,339   494,779 5.3 %
 
All Other Run Rate   116,021   97,057   114,015 19.5 %
 
Total Run Rate $ 1,411,720 $ 1,260,358 $ 1,403,131 12.0 %
 
Total recurring subscriptions $ 1,084,421 $ 990,763 $ 1,070,891 9.5 %
Total asset-based fees   327,299   269,595   332,240 21.4 %
Total Run Rate $ 1,411,720 $ 1,260,358 $ 1,403,131 12.0 %
 
(1) See "Notes Regarding the Use of Operating Metrics" for details
regarding the definition of Run Rate.
 

       

Table 9: Reconciliation of Adjusted EBITDA to Net Income
(unaudited)

 
Three Months Ended Six Months Ended
June 30,     June 30,     Mar. 31, June 30,     June 30,
In thousands 2018 2017(1) 2018 2018 2017(1)
Index adjusted EBITDA $ 157,516 $ 129,519 $ 145,929 $ 303,446 $ 245,196
Analytics adjusted EBITDA 36,327 31,805 33,593 69,920 61,405
All Other adjusted EBITDA   6,582   5,057   7,187   13,768   10,601
Consolidated adjusted EBITDA   200,425   166,381   186,708   387,134   317,202
Amortization of intangible assets 19,537 11,122 11,338 30,875 22,373
Depreciation and amortization of property,
equipment and leasehold improvements   7,377   9,159   8,205   15,582   17,997
Operating income 173,511 146,100 167,166 340,677 276,832
Other expense (income), net 17,188 28,589 27,728 44,916 57,696
Provision for income taxes   39,494   36,245   24,346   63,840   64,919
Net income $ 116,829 $ 81,266 $ 115,092 $ 231,921 $ 154,217
 
(1) As a result of the adoption of recent accounting guidance, the
Company has restated its adjusted EBITDA by reclassifying $0.1
million and $0.3 million of non-service related pension costs out of
adjusted EBITDA expenses for the three and six months ended Jun. 30,
2017, respectively.
 
     

Table 10: Reconciliation of Adjusted Net Income and Adjusted
EPS to Net Income and EPS (unaudited)

 
Three Months Ended Six Months Ended
June 30,   June 30,   Mar. 31, June 30,   June 30,
In thousands, except per share data 2018 2017 2018 2018 2017
Net income $ 116,829 $ 81,266 $ 115,092 $ 231,921 $ 154,217
Plus: Amortization of acquired intangible assets 17,029 10,119 9,207 26,236 20,649
Less: Gain on divestiture (10,636 ) (771 ) (10,636 ) (771 )
Less: Tax Reform adjustments (1,601 ) (1,601 )
Less: Income tax effect   (4,121 )   (3,146 )   (1,608 )   (5,729 )   (6,118 )
Adjusted net income $ 119,101 $ 87,468 $ 121,090 $ 240,191 $ 167,977
 
Diluted EPS $ 1.28 $ 0.89 $ 1.24 $ 2.52 $ 1.68
Plus: Amortization of acquired intangible assets 0.19 0.11 0.10 0.28 0.23
Less: Gain on divestiture (0.12 ) (0.01 ) (0.12 ) (0.01 )
Less: Tax Reform adjustments (0.02 ) (0.02 )
Less: Income tax effect   (0.05 )   (0.04 )   (0.01 )   (0.05 )   (0.07 )
Adjusted EPS $ 1.30 $ 0.95 $ 1.31 $ 2.61 $ 1.83
 
           

Table 11: Reconciliation of Adjusted EBITDA Expenses to
Operating Expenses (unaudited)

 
Three Months Ended Six Months Ended Full-Year
June 30,     June 30,     Mar. 31, June 30,     June 30, 2018
In thousands 2018 2017(2) 2018 2018 2017(2) Outlook(1)
Index adjusted EBITDA expenses $ 55,418 $ 47,637 $ 55,984 $ 111,402 $ 95,395
Analytics adjusted EBITDA expenses 82,792 81,562 85,395 168,186 164,382
All Other adjusted EBITDA expenses   24,411   20,509   23,228   47,640   40,317  
Consolidated adjusted EBITDA expenses   162,621   149,708   164,607   327,228   300,094 $645,000 - $665,000
Amortization of intangible assets 19,537 11,122 11,338 30,875 22,373
Depreciation and amortization of property, 82,000
equipment and leasehold improvements   7,377   9,159   8,205   15,582   17,997  
Total operating expenses $ 189,535 $ 169,989 $ 184,150 $ 373,685 $ 340,464 $725,000 - $750,000
 
(1) We have not provided a line-item reconciliation for adjusted
EBITDA expenses to total operating expenses for this future period
because we do not provide guidance on the individual reconciling
items between total operating expenses and adjusted EBITDA expenses.
(2) As a result of the adoption of recent accounting guidance, the
Company has restated its adjusted EBITDA by reclassifying $0.1
million and $0.3 million of non-service related pension costs out of
adjusted EBITDA expenses for the three and six months ended Jun. 30,
2017, respectively.
 

       

Table 12: Reconciliation of Free Cash Flow to Net Cash Provided
by Operating Activities (unaudited)

 
Three Months Ended Six Months Ended Full-Year
June 30,   June 30,   Mar. 31, June 30,   June 30, 2018
In thousands 2018 2017 2018 2018 2017 Outlook(1)
Net cash provided by operating activities $ 207,165 $ 122,217 $ 88,597 $ 295,762 $ 159,232 $490,000 - $540,000
Capital expenditures (2,967 ) (3,729 ) (1,512 ) (4,479 ) (11,051 )
Capitalized software development costs   (4,238 )   (3,306 )   (4,360 )   (8,598 )   (5,613 )  
Capex   (7,205 )   (7,035 )   (5,872 )   (13,077 )   (16,664 ) (50,000 - 40,000)
Free cash flow $ 199,960 $ 115,182 $ 82,725 $ 282,685 $ 142,568 $440,000 - $500,000
 
(1) We have not provided a line-item reconciliation for free cash
flow to net cash from operating activities for this future period
because we do not provide guidance on the individual reconciling
items between net cash from operating activities and free cash flow.
 
       

Table 13: Reconciliation of Effective Tax Rate to Adjusted Tax
Rate (unaudited)

 
Three Months Ended Six Months Ended
June 30,     June 30,     Mar. 31, June 30,     June 30,
2018 2017 2018 2018 2017
Effective tax rate 25.26% 30.84% 17.46% 21.59% 29.63%
Less: Tax Reform impact on effective tax rate —% —% 1.15% 0.54% —%
Adjusted tax rate 25.26% 30.84% 18.61% 22.13% 29.63%

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