01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
MSCI Inc. reported record 2018 results, with operating revenues rising 12.5% to $1.43 billiona from $1.27 billion in 2017, and net income increasing 67.1% to $507.9 million, or $5.66 per diluted share.
Operating income grew 18.5% to $686.9 millionb, and operating margin expanded to 47.9% from 45.5%. Adjusted EBITDA reached $772.4 million, up 17.1%, with an Adjusted EBITDA margin of 53.9%. Growth was led by the Index segment, where revenues rose 16.2% to $835.5 million, and asset-based fees increased 21.9% to $336.6 million on higher average AUM in ETFs linked to MSCI indexes.
Net income was also boosted by gains from the divestitures of InvestorForce and FEA and by a lower effective tax rate of 19.4%, versus 34.9% in 2017. The balance sheet shows increased leverage. Senior Notes outstanding were $2.6 billionc, and total shareholders' equity was a deficit of $166.5 million at year-end, down from equity of $401.0 million in 2017, reflecting $949.9 million of share repurchases and $172.3 million of dividends declared.
The company repurchased about 6.2 million shares for $925.0 milliond during 2018, and $808.1 million remained under the 2018 Repurchase Program at year-end. The Consolidated Leverage Ratio was 3.13:1.00 against a covenant maximum of 4.25:1.00. Concentration remains a key consideration.
BlackRock accounted for 11.9% of total revenues, and asset-based fees made up 23.5% of revenues. The company also disclosed that its contract with BlackRock has a term ending in March 2020 with auto-renewal for one-year periods unless either party gives notice of termination. The Board declared a quarterly dividend of $0.58 per share payable March 15, 2019.
02—Key points
Key Highlights
- Operating revenues grew 12.5% to $1,433.984 million in 2018, versus $1,274.172 million in 2017.
- Net income rose 67.1% to $507.885 million; diluted EPS was $5.66, compared with $3.31 in 2017.
- Operating margin improved to 47.9% from 45.5%; Adjusted EBITDA increased 17.1% to $772.433 million, a 53.9% margin.
- Index segment revenues grew 16.2% to $835.5 million, with asset-based fees up 21.9% to $336.6 million.
- Total Run Rate reached $1,431.3 million at December 31, 2018, up 4.8%; net new recurring subscription sales were $102.9 million.
- Shareholders' equity was a deficit of $166.5 million at year-end, after $925.0 million of 2018 open-market share repurchases and $2.6 billion of Senior Notes outstanding.
- BlackRock accounted for 11.9% of total revenues, and the BlackRock contract term ends in March 2020 with auto-renewal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Msci kept $0.35.
- Revenue$1.43B100.0%
- Cost of revenue−$287.3M20.0%
- Gross profit$1.15B80.0%
- Operating costs−$459.8M32.1%
- Operating income$686.9M47.9%
- Interest, other & tax−$179.0M12.5%
- Net income$507.9M35.4%
Where FY2018 revenue went
$1.43B- Net income: $507.9M, 35% of revenue
- Other operating costs: $378.3M, 26% of revenue
- Cost of revenue: $287.3M, 20% of revenue
- Interest, other & tax: $179.0M, 12% of revenue
- R&D: $81.4M, 5.7% of revenue
Kept 35% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.43B$1.27B | +12.5% |
| Cost of Revenue | $287.33M$273.68M | +5.0% |
| Gross Profit | $1.15B$1.00B | +14.6% |
| R&D Expenses | $81.41M$75.85M | +7.3% |
| Operating Expenses | $747.09M$694.40M | +7.6% |
| Operating Income | $686.90M$579.77M | +18.5% |
| Interest Expense | $133.11M$116.10M | +14.7% |
| Net Income | $507.88M$303.97M | +67.1% |
| EPS (Basic) | $5.83$3.36 | +73.5% |
| EPS (Diluted) | $5.66$3.31 | +71.0% |
| Shares Outstanding (Basic) | 87.18M90.34M | −3.5% |
| Shares Outstanding (Diluted) | 89.70M91.91M | −2.4% |
05—Questions
Frequently Asked Questions
How did MSCI's profitability change in 2018?
Operating income rose 18.5% to $686.9 million and operating margin improved to 47.9% from 45.5%. Net income increased 67.1% to $507.9 million, helped by $57.0 million of other expense (net), which included gains of $10.6 million from the FEA divestiture and $46.6 million from the InvestorForce divestiture, and by a 19.4% effective tax rate versus 34.9% in 2017.
What drove revenue growth?
Growth was driven mainly by the Index segment, where asset-based fees rose 21.9% to $336.6 million on a 21.9% increase in average AUM in MSCI-linked ETFs. Recurring subscriptions rose 9.6% overall, with Index recurring subscriptions up 11.8% and Analytics up 4.9%.
How concentrated is MSCI's client base?
Revenues from the ten largest clients accounted for 28.6% of total revenues in 2018, versus 27.8% in 2017. BlackRock alone accounted for 11.9%, and 95.8% of BlackRock's revenue came from fees based on its ETFs that track MSCI indexes.
How is MSCI using its capital?
The company repurchased approximately 6.2 million shares for $925.0 million in 2018 and paid dividends of $1.92 per share declared for the year. At December 31, 2018, $808.1 million remained under the 2018 Repurchase Program. The Board declared a $0.58 quarterly dividend payable March 15, 2019.
What leverage and debt risks does the filing describe?
MSCI had $2.6 billion of Senior Notes and an undrawn $250 million revolving credit facility at year-end. Its Consolidated Leverage Ratio was 3.13:1.00 against a maximum of 4.25:1.00, and its Consolidated Interest Coverage Ratio was 6.59:1.00 against a minimum of 4.00:1.00. Interest expense on the Senior Notes and revolver was about $133.1 million in 2018.
06—Continue