01—Abstract
Summary
Summary of the 10-K filed February 28, 2014. Cited figures are marked; the original filing is the authoritative source.
MSCI Inc. reported full-year 2013 operating revenues of $1,035.7 milliona, up 9.0% from $950.1 million in 2012, and operating income of $371.5 million, up 7.1%.
Net income rose to $222.6 millionb from $184.2 million, and diluted EPS was $1.83 versus $1.48. Management noted that operating expenses grew faster than revenue, with 2013 operating expenses up 10.1% to $664.2 million, mainly on higher compensation costs tied to the IPD and InvestorForce acquisitions and staffing growth. Operating margin declined to 35.9% from 36.5%.
The key risk for investors is the Governance business, which the company said it engaged Morgan Stanley on October 31, 2013 to explore strategic alternatives for, including a potential divestiture or other separation. The filing states there is no assurance such a process will result in a transaction, and an adverse outcome could lead to impairment charges. Goodwill and intangible assets totaled $2,394.5 millionc at year-end.
Asset-based fees, tied largely to ETFs linked to MSCI indexes, accounted for 14.4% of 2013 revenues, and assets in those ETFs fell 17.3% to $332.9 billiond during the year, with net outflows of $103.3 billion. Vanguard's 2013 switch away from MSCI indexes also reduced asset-based fees. Balance sheet and capital returns were solid.
Cash and cash equivalents were $358.4 million, and debt under the New Amended and Restated Credit Facility was $810.0 million. The company repurchased shares under ASR programs and, on February 4, 2014, authorized a new $300.0 million repurchase program, with a $100.0 million ASR initiated on February 6, 2014. MSCI paid no dividends, and its Aggregate Retention Rate was 91.3% for 2013.
02—Key points
Key Highlights
- Operating revenues rose 9.0% to $1,035.7 million; operating income rose 7.1% to $371.5 million, with operating margin of 35.9% versus 36.5% in 2012.
- Net income increased 20.8% to $222.6 million, and diluted EPS rose to $1.83 from $1.48.
- Recurring subscriptions were $860.7 million, or 83.1% of revenues; asset-based fees were $149.5 million, or 14.4% of revenues.
- Strategic review of the Governance business was announced October 31, 2013, with Morgan Stanley engaged to explore a potential divestiture or separation, with no assurance of a transaction.
- Total Run Rate reached $1,050.4 million at December 31, 2013, up 8.6%; the Aggregate Retention Rate was 91.3%.
- ETF assets linked to MSCI equity indexes fell 17.3% to $332.9 billion at year-end, with net outflows of $103.3 billion during 2013.
- Management plans to repurchase up to $300.0 million of stock under a program authorized February 4, 2014, and the company pays no dividends.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Msci kept $0.24.
- Revenue$913.4M100.0%
- Cost of revenue−$240.7M26.4%
- Gross profit$672.7M73.6%
- Operating costs−$332.3M36.4%
- Operating income$340.3M37.3%
- Interest, other & tax−$117.8M12.9%
- Net income$222.6M24.4%
Where FY2013 revenue went
$913.4M- Cost of revenue: $240.7M, 26% of revenue
- SG&A: $232.4M, 25% of revenue
- Net income: $222.6M, 24% of revenue
- Interest, other & tax: $117.8M, 13% of revenue
- R&D: $61.0M, 6.7% of revenue
- Other operating costs: $38.9M, 4.3% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 28, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $913.36M$826.99M | +10.4% |
| Cost of Revenue | $240.70M— | — |
| Gross Profit | $672.67M— | — |
| R&D Expenses | $61.00M— | — |
| SG&A Expenses | $232.45M$211.91M | +9.7% |
| Operating Expenses | $573.03M$508.75M | +12.6% |
| Operating Income | $340.33M$318.24M | +6.9% |
| Interest Expense | $26.26M$56.40M | −53.4% |
| Net Income | $222.56M$184.24M | +20.8% |
| EPS (Basic) | $1.85$1.50 | +23.3% |
| EPS (Diluted) | $1.83$1.48 | +23.6% |
| Shares Outstanding (Basic) | 120.10M122.02M | −1.6% |
| Shares Outstanding (Diluted) | 121.07M123.20M | −1.7% |
05—Questions
Frequently Asked Questions
What is the status of the Governance business sale process?
On October 31, 2013, MSCI engaged Morgan Stanley to explore strategic alternatives for the Governance business, including a potential divestiture or other separation of the entire business. The filing states there can be no assurance the process will result in a transaction, and an adverse outcome could lead to potential future impairment charges.
Why did operating income grow more slowly than revenue in 2013?
Operating revenues grew 9.0% while operating income grew 7.1%, which the filing attributes in part to increased investment in the business. Operating expenses rose 10.1%, mainly from higher compensation costs, and management expects spending growth in 2014 to again exceed revenue growth.
How exposed is MSCI to ETF asset flows?
Asset-based fees were 14.4% of 2013 revenues and 41.1% of revenues from the ten largest clients. MSCI-linked ETF assets fell 17.3% to $332.9 billion in 2013, and BlackRock accounted for 8.8% of total revenues, with 87.0% of its revenue from ETF-based fees.
What is MSCI's capital allocation approach?
The company pays no dividends and retains funds for growth, debt repayment, and share repurchases. It repurchased shares under 2012 and 2013 ASR programs, and on February 4, 2014 its board approved a new $300.0 million repurchase program, with a $100.0 million ASR entered February 6, 2014.
06—Continue