01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
MSCI Inc. (MSCI) reported total operating revenues of $1,274.2 milliona for 2017, up 10.7% from $1,150.7 million in 2016, with operating income rising 18.7% to $579.2 million and net income increasing 16.5% to $304.0 million.
Diluted EPS was $3.31b versus $2.70 in 2016. Adjusted EBITDA grew 15.8% to $659.2 million, and the Adjusted EBITDA margin expanded to 51.7% from 49.5%, driven mainly by the Index segment. Index segment revenue rose 17.2% to $719.0 million, led by asset-based fees, which grew 31.3% to $276.1 million on a 39.2% increase in average AUM in ETFs linked to MSCI indexes.
The company's concentration in index-linked products is a central theme for investors. Asset-based fees made up 21.7% of 2017 revenues, and BlackRock accounted for 11.5% of total revenues, with 95.3% of BlackRock revenue tied to ETFs based on MSCI indexes. The filing also flags risks from fee compression, client self-sufficiency, EU benchmark regulation, and Tax Reform, which produced a provisional net tax charge of $34.5 millionc in 2017.
Total Run Rate grew 17.4% to $1,365.7 milliond at December 31, 2017, and the Aggregate Retention Rate for the full year was 93.8%. Balance sheet items include $2.1 billion of Senior Notes, an undrawn $220.0 million revolving credit agreement, and a Consolidated Leverage Ratio of 2.98:1.00. In 2017 the company repurchased about 1.6 million shares for $136.9 million and paid dividends of $1.32 per share on a declared basis, with a quarterly dividend of $0.38 declared on January 30, 2018.
02—Key points
Key Highlights
- Operating revenues rose 10.7% to $1,274.2 million in 2017, and net income rose 16.5% to $304.0 million.
- Index segment revenues grew 17.2% to $719.0 million, with asset-based fees up 31.3% to $276.1 million on a 39.2% increase in average ETF AUM linked to MSCI indexes.
- Adjusted EBITDA increased 15.8% to $659.2 million, and Adjusted EBITDA margin improved to 51.7% from 49.5%.
- Total Run Rate grew 17.4% to $1,365.7 million as of December 31, 2017, with asset-based fee Run Rate up 46.0% to $316.8 million.
- Customer concentration remains significant: the ten largest clients accounted for 27.8% of revenues, and BlackRock for 11.5%.
- Tax Reform produced a provisional net charge of $34.5 million, and the company expects a lower effective tax rate for 2018 with the U.S. federal rate falling to 21.0%.
- The company had $2.1 billion of Senior Notes outstanding, an undrawn $220.0 million revolver, and a Consolidated Leverage Ratio of 2.98:1.00 at year-end 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Msci kept $0.24.
- Revenue$1.27B100.0%
- Cost of revenue−$273.7M21.5%
- Gross profit$1.00B78.5%
- Operating costs−$420.7M33.0%
- Operating income$579.8M45.5%
- Interest, other & tax−$275.8M21.6%
- Net income$304.0M23.9%
Where FY2017 revenue went
$1.27B- Other operating costs: $344.9M, 27% of revenue
- Net income: $304.0M, 24% of revenue
- Interest, other & tax: $275.8M, 22% of revenue
- Cost of revenue: $273.7M, 21% of revenue
- R&D: $75.8M, 6.0% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.27B$1.15B | +10.7% |
| Cost of Revenue | $273.68M$252.11M | +8.6% |
| Gross Profit | $1.00B$898.56M | +11.3% |
| R&D Expenses | $75.85M$75.20M | +0.9% |
| Operating Expenses | $694.40M$662.57M | +4.8% |
| Operating Income | $579.77M$488.10M | +18.8% |
| Interest Expense | $116.10M$101.65M | +14.2% |
| Net Income | $303.97M$260.86M | +16.5% |
| EPS (Basic) | $3.36$2.72 | +23.5% |
| EPS (Diluted) | $3.31$2.70 | +22.6% |
| Shares Outstanding (Basic) | 90.34M95.99M | −5.9% |
| Shares Outstanding (Diluted) | 91.91M96.54M | −4.8% |
05—Questions
Frequently Asked Questions
What drove MSCI's revenue growth in 2017?
Operating revenues grew 10.7% to $1,274.2 million. Asset-based fees rose 31.3% to $276.1 million, driven by a $48.2 million, or 33.9%, increase in revenue from ETFs linked to MSCI indexes. Recurring subscriptions grew 6.5% to $973.0 million, mainly from Index products.
How concentrated is MSCI's revenue among clients?
The ten largest clients accounted for 27.8% of total revenues in 2017, up from 25.7% in 2016. BlackRock was the largest client organization at 11.5% of total revenues, and 95.3% of BlackRock revenue came from fees based on assets in its ETFs that track MSCI indexes.
What are the main risks to asset-based fee revenue?
The filing notes that clients may negotiate lower asset-based fee percentages, reduce total expense ratios, or stop using MSCI indexes. Shifts toward active management, volatile capital markets, and foreign currency movements could also reduce fees. Approximately two-thirds of the assets in index-linked products are invested in non-U.S. dollar currencies.
How did the 2017 Tax Reform affect MSCI's results?
MSCI recorded a provisional net charge of $34.5 million to its 2017 provision for income taxes, which raised the effective tax rate to 34.9%. The company expects its effective tax rate for 2018 to be lower than in 2017 because the U.S. federal corporate rate falls to a flat 21.0%.
What did MSCI return to shareholders in 2017?
MSCI repurchased approximately 1.6 million shares for $136.9 million in 2017 under its 2016 Repurchase Program. Dividends declared totaled $1.32 per share for 2017, and the Board declared a $0.38 quarterly dividend on January 30, 2018. As of February 16, 2018, $678.6 million remained available under the share repurchase authorization.
06—Continue