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MSCI Inc. Reports Second Quarter 2012 Financial Results

MSCI Inc. (NYSE: MSCI), a leading global provider of investment decision support tools, including indices, portfolio risk and performance analytics and corporate governance services, today announced results for the second quarter and six months ended June 30, 2012.

(Note: Percentage changes are referenced to the comparable period in fiscal year 2011, unless otherwise noted.)

  • Operating revenues increased 5.3% to $238.6 million in second quarter 2012 and 4.0% to $467.6 million for six months 2012.
  • Net income declined by 17.8% to $37.5 million in second quarter 2012, driven by costs associated with debt repayment and refinancing. Net income grew 2.9% to $81.5 million for six months 2012.
  • Adjusted EBITDA (defined below) grew by 0.9% to $107.9 million in second quarter 2012 but fell 0.8% to $209.8 million in six months 2012. Second quarter 2012 Adjusted EBITDA margin fell to 45.2% from 47.2% and six months 2012 Adjusted EBITDA margin fell to 44.9% from 47.0%.
  • Diluted EPS for second quarter 2012 fell 18.9% to $0.30 but rose 3.1% to $0.66 for six months 2012.
  • Second quarter 2012 Adjusted EPS (defined below) rose 6.4% to $0.50 and 4.4% to $0.94 for six months 2012.

Henry A. Fernandez, Chairman and CEO, said, “MSCI had a solid second quarter. Despite a challenging operating environment, we grew our revenues, Adjusted EBITDA and Adjusted EPS. Our subscription run rate also continued to grow, aided by continued high levels of retention, which helped offset a decline in asset-based fees.”

Table 1: MSCI Inc. Selected Financial Information (unaudited)
Three Months Ended Change from Six Months Ended Change From
In thousands, except per share data

June 30,
2012

June 30,
2011

June 30,
2011

June 30,
2012

June 30,
2011

June 30,
2011

Operating revenues $ 238,565 $ 226,483 5.3% $ 467,617 $ 449,781 4.0%
Operating expenses 151,444 143,792 5.3% 299,517 291,661 2.7%
Net income 37,546 45,660 (17.8%) 81,512 79,181 2.9%
% Margin 15.7% 20.2% 17.4% 17.6%
Diluted EPS $ 0.30 $ 0.37 (18.9%) $ 0.66 $ 0.64

3.1%

Adjusted EPS1 $ 0.50 $ 0.47 6.4% $ 0.94 $ 0.90 4.4%
Adjusted EBITDA2 $ 107,912 $ 106,995 0.9% $ 209,819 $ 211,469 (0.8%)
% Margin 45.2% 47.2% 44.9% 47.0%

1 Per share net income before after-tax impact of amortization of intangibles, non-recurring stock-based compensation, restructuring costs and debt repayment and refinancing expenses. See Table 14 titled "Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS" and information about the use of non-GAAP financial information provided under "Notes Regarding the Use of Non-GAAP Financial Measures.”

2 Net Income before income taxes, other net expense and income, depreciation, amortization, non-recurring stock-based compensation and restructuring costs. See Table 13 titled "Reconciliation of Adjusted EBITDA to Net Income" and information about the use of non-GAAP financial information provided under "Notes Regarding the Use of Non-GAAP Financial Measures.”

Summary of Results for Second Quarter 2012 compared to Second Quarter 2011

Operating Revenues – See Table 4

Total operating revenues for the three months ended June 30, 2012 (second quarter 2012) increased $12.1 million, or 5.3%, to $238.6 million compared to $226.5 million for the three months ended June 30, 2011 (second quarter 2011). Total second quarter 2012 subscription revenues rose $15.9 million, or 8.7%, to $198.1 million while asset-based fees declined $2.2 million, or 6.0%, to $34.1 million. Non-recurring revenues fell $1.6 million to $6.4 million.

By segment, Performance and Risk revenues rose $12.1 million, or 6.2%, to $207.6 million. The Performance and Risk segment is comprised of index and ESG (defined below) products, risk management analytics, portfolio management analytics, and energy and commodity analytics. Revenues for the Governance segment were flat at $31.0 million.

Index and ESG products: Our index and ESG products primarily consist of equity index subscriptions, equity index asset-based fee products and environmental, social and governance (“ESG”) products. Index and ESG products revenues increased $7.4 million, or 7.2%, to $109.9 million. Subscription revenues grew by $9.6 million, or 14.4%, to $75.8 million, driven by strong growth in revenues from MSCI’s ACWI (All Country World Index) core and other index modules as well as higher usage fees. Non-recurring revenues were $2.2 million, up from $2.0 million in second quarter 2011.

Revenues attributable to equity index asset-based fees declined $2.2 million, or 6.0%, to $34.1 million. The average assets under management in ETFs linked to MSCI indices fell 7.1% to $331.6 billion from $356.8 billion in second quarter 2011.

Risk management analytics: Our risk management analytics products offer consistent risk and performance assessment frameworks for managing and monitoring investments in a variety of asset classes and are based on our proprietary integrated fundamental multi-factor risk models, value-at-risk methodologies, performance attribution frameworks and asset valuation models. Revenues related to risk management analytics increased $3.7 million, or 6.2%, to $64.5 million. The increase in risk management analytics revenues was driven by higher revenues from our primary risk management platforms, RiskManager and BarraOne, as well as our wealth management risk systems.

Portfolio management analytics: Our portfolio management analytics products consist of analytics tools for equity and fixed income portfolio management. Revenues related to portfolio management analytics were flat at $29.3 million.

Energy and commodity analytics: Our energy and commodity analytics products consist of software applications that help users value and model physical assets and derivatives across a number of market segments. Revenues from energy and commodity analytics products were $3.8 million, up $0.8 million, or 28.2%, from second quarter 2011. At the beginning of 2012, we corrected an error in our revenue recognition policy for our energy and commodity analytics products. The correction resulted in a greater proportion of annual revenue being recognized in second quarter 2012 than in second quarter 2011.

Governance: Our governance products consist of corporate governance products and services, including proxy research, recommendation and voting services for institutional investors as well as governance advisory services and compensation data and analytics for corporations. They also include equity research based on forensic accounting as well as class action monitoring and claims filing services to aid institutional investors in the recovery of funds from class action securities litigation. Governance revenues were $31.0 million in second quarter 2012, unchanged from second quarter 2011.

Operating Expenses – See Table 6

Total operating expenses rose $7.7 million, or 5.3%, to $151.4 million. An increase in compensation expenses was partially offset by declines in non-recurring stock-based compensation expense, restructuring costs and depreciation and amortization expenses.

Compensation costs: Total compensation costs rose $8.5 million, or 10.0%, to $93.7 million in second quarter 2012. Excluding non-recurring stock-based compensation expense, total compensation costs rose $11.0 million, or 13.4%, to $93.5 million. Compensation costs were impacted by an increase in overall headcount and by higher severance costs. Non-recurring stock-based compensation declined $2.5 million, or 92.8%, to $0.2 million, primarily reflecting the amortization of certain stock awards. Non-recurring stock-based compensation expenses for second quarter 2012 consisted of performance awards granted to certain employees in connection with the acquisition of RiskMetrics which will be fully amortized at the end of 2012.

Non-compensation costs excluding depreciation and amortization and restructuring costs: Total non-compensation operating expenses excluding depreciation and amortization and restructuring costs rose slightly to $37.1 million in second quarter 2012. The biggest drivers of the increase were higher occupancy and information technology expenses. Offsetting these increases were declines in professional fees, market data costs and other non-compensation expenses.

Cost of services: Total cost of services expenses rose by $4.4 million, or 6.4%, to $73.2 million. Within costs of services, compensation expenses increased by $6.4 million, or 12.9%, and non-compensation expenses fell by $2.0 million, or 10.0%.

Selling, general and administrative expense (SG&A): Total SG&A expense rose $4.3 million, or 8.0%, to $57.6 million. Within SG&A, compensation expenses increased by $2.2 million, or 6.1%, and non-compensation expenses increased by $2.1 million, or 12.0%.

Depreciation and amortization: Amortization of intangibles expense totaled $16.0 million compared to $16.4 million in second quarter 2011, a decline of 2.8%. Depreciation and amortization of property plant and equipment fell $0.5 million, or 9.8%, to $4.7 million as capital investments made in prior periods became fully depreciated.

Other Expense (Income), Net

Other expense (income), net for second quarter 2012 was $29.9 million, an increase of $16.8 million from second quarter 2011. Interest expense increased $16.7 million as a result of $20.6 million of expenses incurred when MSCI obtained an $880 million five year Term Loan A facility, the proceeds of which, together with cash on hand, were used to repay its $1,079 million pre-existing Senior Secured Term Loan B facility. Excluding the impact of that refinancing and debt repayment expense, interest expense declined by $3.9 million as a result of lower levels of indebtedness and lower interest rates.

Provision for Income Taxes

Income tax expense was $19.7 million in second quarter 2012, a decrease of $4.3 million, or 17.8%, from second quarter 2011. At 34.4%, the effective tax rate was unchanged from a year ago.

Net Income and Earnings per Share – See Table 14

Net income declined $8.1 million, or 17.8%, to $37.5 million for second quarter 2012. The net income margin fell to 15.7% from 20.2% as a result of the lower operating profit margin and the debt repayment and refinancing expenses. Diluted EPS declined 18.9% to $0.30.

Adjusted net income, which excludes the after-tax impact of amortization of intangibles, non-recurring stock-based compensation expense, restructuring costs and debt repayment and refinancing expenses totaling $24.0 million, rose $3.3 million, or 5.7%, to $61.5 million. Adjusted EPS, which excludes the after-tax, per share impact of amortization of intangibles, non-recurring stock-based compensation expense, restructuring costs and debt repayment and refinancing expenses totaling $0.20, rose 6.4% to $0.50.

See Table 14 titled “Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.

Adjusted EBITDA – See Table 13

Adjusted EBITDA, which excludes, among other things, the impact of non-recurring stock-based compensation and restructuring costs, was $107.9 million, up $0.9 million, or 0.9%, from second quarter 2011. The Adjusted EBITDA margin declined to 45.2% from 47.2%.

By segment, Adjusted EBITDA for the Performance and Risk segment increased $3.0 million, or 3.1%, to $102.6 million in second quarter 2012.The Adjusted EBITDA margin for this segment fell to 49.4% from 50.9% in 2011. Adjusted EBITDA for the Governance segment declined $2.1 million, or 28.6%, to $5.3 million and the Adjusted EBITDA margin for this segment fell to 17.2% from 24.0%. Governance costs were impacted by year-over-year increases in severance expense, occupancy costs and legal fees.

See Table 13 titled “Reconciliation of Adjusted EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.

Summary of Results for Six Months Ended June 30, 2012 compared to Six Months Ended June 30, 2011

Operating Revenues – See Table 5

Total operating revenues for the six months ended June 30, 2012 (six months 2012) increased $17.8 million, or 4.0%, to $467.6 million compared to $449.8 million for the six months ended June 30, 2011 (six months 2011). Total subscription revenues rose $25.8 million, or 7.2%, to $384.7 million, while asset-based fees declined $1.2 million, or 1.7%, to $68.7 million. Total non-recurring revenues fell $6.7 million, or 32.2%, to $14.2 million.

Index and ESG products and risk management analytics revenues grew 6.7% and 7.5%, respectively, in six months 2012. Portfolio management analytics and governance revenues were essentially unchanged. Energy and other commodity analytics revenues fell $4.3 million, or 63.6%, primarily as a result of a $5.2 million non-cash cumulative revenue reduction to correct an error that was recorded in first quarter 2012.

By segment, Performance and Risk revenues rose $18.1 million, or 4.7%, to $405.7 million for six months 2012. Governance revenues were $62.0 million, essentially flat versus six months 2011.

Operating Expenses – See Table 7

Total operating expenses increased $7.9 million, or 2.7%, to $299.5 million in six months 2012 compared to six months 2011. Operating expenses in the six months 2012 included a benefit of $0.1 million related to the reversal of previously booked restructuring costs and, in six months 2011, restructuring costs of $4.5 million. Excluding these expenses, total operating expenses would have risen by $12.4 million, or 4.3%. The increase reflects increases of $12.5 million, or 7.2%, in total compensation expenses and $2.3 million, or 3.3%, in non-compensation expenses offset by a decline of $2.4 million, or 5.5%, in depreciation and amortization expenses.

Other Expense (Income), Net

Other expense (income), net for six months 2012 was $42.6 million, an increase of $7.5 million from six months 2011. Other expense (income), net includes debt repayment and refinancing expenses of $20.6 million in six months 2012 and $6.4 million in six months 2011. Excluding the change in debt repayment and refinancing expenses, other expense declined by $6.8 million in six months 2012 as a result of a combination of lower levels of indebtedness and a lower cost of debt.

Provision for Income Taxes

The provision for income tax expense was $44.0 million in six months 2012, essentially flat from six months 2011. The effective tax rate was 35.1%, down from 35.6% a year ago.

Net Income and Earnings per Share – See Table 14

Net income increased $2.3 million, or 2.9%, to $81.5 million and the net income margin decreased slightly to 17.4% from 17.6%. Diluted EPS rose slightly to $0.66 from $0.64.

Adjusted net income, which excludes the after-tax impact of amortization of intangibles, non-recurring stock-based compensation expense, debt repayment expenses, and restructuring costs totaling $34.6 million, rose $5.1 million, or 4.6%, to $116.1 million. Adjusted EPS, which excludes the after-tax, per share impact of amortization of intangibles, non-recurring stock-based compensation expense, debt repayment expenses, and restructuring costs totaling $0.28, rose 4.4% to $0.94 in six months 2012.

See table 14 titled “Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS.”

Adjusted EBITDA – See Table 13

Adjusted EBITDA was $209.8 million, a decrease of $1.7 million, or 0.8%, from six months 2011. Adjusted EBITDA margin fell to 44.9% from 47.0%.

By segment, Adjusted EBITDA for the Performance and Risk segment increased $2.3 million, or 1.2%, to $196.8 million from six months 2011. Adjusted EBITDA margin declined to 48.5% from 50.2% in six months 2011. Adjusted EBITDA for the Governance segment declined $3.9 million, or 23.1%, to $13.0 million in six months 2012. The Adjusted EBITDA Margin for the Governance segment was 21.0%, down from 27.3% in six months 2011.

See Table 13 titled “Reconciliation of Adjusted EBITDA to Net Income” and “Notes Regarding the Use of Non-GAAP Financial Measures” below.

Key Operating Metrics – See Tables 10, 11, 12

Total run rate grew by $31.7 million, or 3.6%, to $919.6 million as of June 30, 2012 versus June 30, 2011. Subscription run rate, which excludes the impact of asset-based fees, grew by $42.8 million, or 5.7%, to $790.6 million. Asset-based fee run rate declined by $11.1 million, or 7.9%, to $129.0 million.

Run rate was unchanged versus March 31, 2012. Subscription run rate grew by $8.3 million, or 1.1%, from $782.2 million, driven by recurring subscription sales of $28.5 million offset, in part, by subscription cancellations of $17.2 million. Changes in foreign currency exchange rates reduced subscription run rate by $2.8 million during second quarter 2012. The aggregate retention rate in second quarter 2012 declined to 91.0% from 91.9% in second quarter 2011. Asset-based fee run rate declined by $7.9 million sequentially, or 5.8%, driven by a decline in assets under management in ETFs linked to MSCI indices.

At the end of second quarter 2012, assets under management in ETFs linked to MSCI indices were $327.4 billion, down $33.1 billion, or 9.2%, from the end of second quarter 2011 and down $27.3 billion, or 7.7%, from the end of first quarter 2012. ETFs linked to MSCI indices attracted net inflows of $0.3 billion in second quarter 2012.

As of June 30, 2012, 39.0% of assets under management in ETFs linked to MSCI indices were linked to emerging markets indices, 32.4% were linked to other developed markets outside the U.S., 25.6% were linked to U.S. market indices and 3.0% were linked to other global indices.

Conference Call Information

Investors will have the opportunity to listen to MSCI Inc.'s senior management review second quarter 2012 results on Thursday, August 2, 2012 at 11:00 am Eastern Time. To listen to the live event, visit the investor relations section of MSCI's website, http://ir.msci.com/events.cfm, or dial 1-877-312-9206 within the United States. International callers dial 1-408-774-4001.

An audio recording of the conference call will be available on our website approximately two hours after the conclusion of the live event and will be accessible through August 8, 2012. To listen to the recording, visit http://ir.msci.com/events.cfm, or dial 1-855-859-2056 (passcode: 10573550) within the United States. International callers dial 1-404-537-3406 (passcode: 10573550).

About MSCI Inc.

MSCI Inc. is a leading provider of investment decision support tools to investors globally, including asset managers, banks, hedge funds and pension funds. MSCI products and services include indices, portfolio risk and performance analytics, and governance tools.

The company’s flagship product offerings are: the MSCI indices with approximately USD 7 trillion estimated to be benchmarked to them on a worldwide basis1; Barra multi-asset class factor models, portfolio risk and performance analytics; RiskMetrics multi-asset class market and credit risk analytics; ISS governance research and outsourced proxy voting and reporting services; and FEA valuation models and risk management software for the energy and commodities markets. MSCI is headquartered in New York, with research and commercial offices around the world. MSCI#IR

1As of June 30, 2011, based on eVestment, Lipper and Bloomberg data.

For further information on MSCI Inc. or our products please visit www.msci.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These 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 forward-looking 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 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, 2011 and filed with the Securities and Exchange Commission (SEC) on February 29, 2012, and in quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this release reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume 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.

Notes Regarding the Use of Non-GAAP Financial Measures

MSCI has presented supplemental non-GAAP financial measures as part of this earnings release. A reconciliation is provided that reconciles each non-GAAP financial measure with the most comparable GAAP measure. The presentation of non-GAAP financial measures should not be considered as alternative measures for the most directly comparable GAAP financial measures. These measures 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 provision for income taxes, other net expense and income, depreciation and amortization, non-recurring stock-based compensation expense and restructuring costs.

Adjusted net income and Adjusted EPS are defined as net income and EPS, respectively, before provision for non-recurring stock-based compensation expenses, amortization of intangible assets, restructuring costs and the accelerated amortization or write off of deferred financing and debt discount costs as a result of debt repayment (debt repayment and refinancing expenses), as well as for any related tax effects.

We believe that adjustments related to restructuring costs and debt repayment and refinancing expenses are useful to management and investors because it allows for an evaluation of MSCI’s underlying operating performance. Additionally, we believe that adjusting for non-recurring stock-based compensation expenses, debt repayment and refinancing expenses and the amortization of intangible assets may help investors compare our performance to that of other companies in our industry as we do not believe that other companies in our industry have as significant a portion of their operating expenses represented by these items. 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, Adjusted net income and Adjusted EPS are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies.

Table 2: MSCI Inc. Consolidated Statement of Income (unaudited)

Three Months Ended Six Months Ended

In thousands, except per share data

June 30,
2012

June 30,
2011

March 31,
2012

June 30,
2012

June 30,
2011

Operating revenues $ 238,565 $ 226,483 $ 229,052 $ 467,617 $ 449,781
Operating expenses
Cost of services 73,243 68,840 72,291 145,534 139,058
Selling, general and administrative 57,602 53,321 55,436 113,038 104,739
Restructuring costs (22) 40 (29) (51) 4,471
Amortization of Intangibles 15,959 16,423 15,959 31,918 33,115

Depreciation and amortization of property,
equipment and leasehood improvements

4,662 5,168 4,416 9,078 10,278
Total operating expenses $ 151,444 $ 143,792 $ 148,073 $ 299,517 $ 291,661
Operating income $ 87,121 $ 82,691 $ 80,979 $ 168,100 $ 158,120
Operating margin36.5%36.5%35.4%35.9%35.2%
Interest income (237) (186) (223) (460) (329)
Interest expense 29,581 12,852 12,355 41,936 29,439
Other expense (income) 516 383 608 1,124 6,024
Other expenses (income), net $ 29,860 $ 13,049 $ 12,740 $ 42,600 $ 35,134
Income before taxes 57,261 69,642 68,239 125,500 122,986
Provision for income taxes 19,715 23,982 24,273 43,988 43,805
Net income $ 37,546 $ 45,660 $ 43,966 $ 81,512 $ 79,181
Net income margin15.7%20.2%19.2%17.4%17.6%
Earnings per basic common share $ 0.31 $ 0.38 $ 0.36 $ 0.66 $ 0.65
Earnings per diluted common share $ 0.30 $ 0.37 $ 0.35 $ 0.66 $ 0.64
Weighted average shares outstanding used
in computing earnings per share
Basic 122,030 120,592 121,754 121,892 120,438
Diluted 123,295 122,235 123,113 123,204 122,125
Table 3: MSCI Inc. Selected Balance Sheet Items (Unaudited)
As of
In thousands

June 30,
2012

December 31,
2011

Cash and cash equivalents $ 273,307 $ 252,211
Short-term investments 86,460 140,490
Trade receivables, net of allowances 136,074 180,566
Deferred revenue $ 333,890 $ 289,217
Current maturites of long-term debt 43,070 10,339
Long-term debt, net of current maturities 833,175 1,066,548

Table 4: Second Quarter 2012 Operating Revenues by Product Category and Revenue Type (unaudited)

Three Months Ended

% Change from

In thousands

June 30,
2012

June 30,
2011

March 31,
2012

June 30,
2011

March 31,
2012

Index and ESG products
Subscriptions $ 75,829 $ 66,275 $ 71,639 14.4% 5.8%
Asset-based fees 34,094 36,287 34,609 (6.0%) (1.5%)
Index and ESG products total 109,923 102,562 106,248 7.2% 3.5%
Risk management analytics 64,547 60,806 64,077 6.2% 0.7%
Portfolio management analytics 29,326 29,193 29,063 0.5% 0.9%
Energy and commodity analytics
Recurring Energy and commodity analytics 3,780 2,949 3,904 28.2% (3.2%)
Correction1 - - (5,203) n/mn/m
Net energy and commodity analytics 3,780 2,949 (1,299) 28.2% n/m
Total Performance and Risk revenues $ 207,576 $ 195,510 $ 198,089 6.2% 4.8%
Total Governance revenues 30,989 30,973 30,963 0.1% 0.1%
Total operating revenues $ 238,565 $ 226,483 $ 229,052 5.3% 4.2%
Subscriptions $ 198,104 $ 182,251 $ 186,636 8.7% 6.1%
Asset-based fees 34,094 36,287 34,609 (6.0%) (1.5%)
Non-recurring revenue 6,367 7,945 7,807 (19.9%) (18.4%)
Total operating revenues $ 238,565 $ 226,483 $ 229,052 5.3% 4.2%

(1) In first quarter 2012, MSCI recorded a non-cash $5.2 million cumulative revenue reduction to correct an error related to energy and commodity analytics revenues reported prior to January 1, 2011. MSCI’s previous policy had resulted in the immediate recognition of a substantial portion of the revenue related to a majority of its contracts rather than amortizing that revenue over the life of that contract, which is now the method of recognition.

Table 5: Six Months 2012 Operating Revenues by Product Category and Revenue Type (unaudited)

Six Months Ended % Change
In thousands

June 30,
2012

June 30,
2011

June 30,
2011

Index and ESG products
Subscriptions $ 147,468 $ 128,434 14.8%
Asset-based fees 68,703 74,156 (7.4%)
Index and ESG products total 216,171 202,590 6.7%
Risk management analytics 128,624 119,672 7.5%
Portfolio management analytics 58,389 58,477 (0.2%)
Energy and commodity analytics
Recurring Energy and commodity analytics 7,684 6,819 12.7%
Correction1 (5,203) - n/a
Net energy and commodity analytics 2,481 6,819 (63.6%)
Total Performance and Risk revenues $ 405,665 $ 387,558 4.7%
Total Governance revenues 61,952 62,223 (0.4%)
Total operating revenues $ 467,617 $ 449,781 4.0%
Subscriptions $ 384,739 $ 358,976 7.2%
Asset-based fees 68,703 69,894 (1.7%)
Non-recurring revenue 14,175 20,911 (32.2%)
Total operating revenues $ 467,617 $ 449,781 4.0%

(1) In first quarter 2012, MSCI recorded a non-cash $5.2 million cumulative revenue reduction to correct an error related to energy and commodity analytics revenues reported prior to January 1, 2012. MSCI’s previous policy had resulted in the immediate recognition of a substantial portion of the revenue related to a majority of its contracts rather than amortizing that revenue over the life of that contract, which is now the method of recognition.

Table 6: Additional Second Quarter 2012 Operating Expense Detail (unaudited)

Three Months Ended % Change from
In thousands

June 30,
2012

June 30,
2011

March 31,
2012

June 30,
2011

March 31,
2012

Cost of services
Compensation $ 55,492 $ 48,118 $ 53,549 15.3% 3.6%
Non-recurring stock based comp 94 1,108 268 (91.5%) (64.9%)
Total compensation $ 55,586 $ 49,226 $ 53,817 12.9% 3.3%
Non-compensation 17,657 19,614 18,474 (10.0%) (4.4%)
Total cost of services $ 73,243 $ 68,840 $ 72,291 6.4% 1.3%
Selling, general and administrative
Compensation $ 38,025 $ 34,370 $ 38,492 10.6% (1.2%)
Non-recurring stock based comp 98 1,565 314 (93.7%) (68.8%)
Total compensation $ 38,123 $ 35,935 $ 38,806 6.1% (1.8%)
Non-compensation 19,479 17,386 16,630 12.0% 17.1%
Total selling, general and administrative $ 57,602 $ 53,321 $ 55,436 8.0% 3.9%
Restructuring costs (22) 40 (29) (155.0%) (24.1%)
Amortization of intangibles 15,959 16,423 15,959 (2.8%) 0.0%
Depreciation and amortization 4,662 5,168 4,416 (9.8%) 5.6%
Total operating expenses $ 151,444 $ 143,792 $ 148,073 5.3% 2.3%
In thousands
Non-recurring stock-based compensation $ 192 $ 2,673 $ 582 (92.8%) (67.0%)
Compensation excluding non-recurring comp 93,517 82,488 92,041 13.4% 1.6%
Non-compensation expenses 37,136 37,000 35,104 0.4% 5.8%
Restructuring costs (22) 40 (29) (155.0%) (24.1%)
Amortization of intangibles 15,959 16,423 15,959 (2.8%) 0.0%
Depreciation and amortization 4,662 5,168 4,416 (9.8%) 5.6%

Total operating expenses

$ 151,444 $ 143,792 $ 148,073 5.3% 2.3%

Table 7: Additional Six Months 2012 Operating Expense Detail (unaudited)

Six Months Ended % Change from
In thousands

June 30,
2012

June 30,
2011

June 30,
2011

Cost of services
Compensation $ 109,041 $ 99,201 9.9%
Non-recurring stock based comp 362 2,238 (83.8%)
Total compensation $ 109,403 $ 101,439 7.9%
Non-compensation 36,131 37,619 (4.0%)
Total cost of services $ 145,534 $ 139,058 4.7%
Selling, general and administrative
Compensation $ 76,517 $ 69,175 10.6%
Non-recurring stock based comp 412 3,247 (87.3%)
Total compensation $ 76,929 $ 72,422 6.2%
Non-compensation 36,109 32,317 11.7%
Total selling, general and administrative $ 113,038 $ 104,739 7.9%
Restructuring costs (51) 4,471 (101.1%)
Amortization of intangibles 31,918 33,115 (3.6%)
Depreciation and amortization 9,078 10,278 (11.7%)
Total operating expenses $ 299,517 $ 291,661 2.7%
In thousands
Non-recurring stock-based compensation $ 774 $ 5,485 (85.9%)
Compensation excluding non-recurring comp 185,558 168,376 10.2%
Non-compensation expenses 72,240 69,936 3.3%
Restructuring costs (51) 4,471 (101.1%)
Amortization of intangibles 31,918 33,115 (3.6%)
Depreciation and amortization 9,078 10,278 (11.7%)

Total operating expenses

$ 299,517 $ 291,661 2.7%

Table 8: Summary Quarterly Segment Information (unaudited)

Three Months Ended

% Change from

In thousands

June 30,
2012

June 30,
2011

March 31,
2012

June 30,
2011

March 31,
2011

Revenues:
Performance and Risk $ 207,576 $ 195,510 $ 198,089 6.2% 4.8%
Governance 30,989 30,973 30,963 0.1% 0.1%
Total Operating revenues$238,565$226,483$229,0525.3%4.2%
Operating Income:
Performance and Risk 85,980 79,855 77,475 7.7% 11.0%
Margin41.4%40.8%39.1%
Governance 1,141 2,836 3,504 (59.8%) (67.4%)
Margin3.7%9.2%11.3%
Total Operating Income$87,121$82,691$80,9795.4%7.6%
Margin36.5%36.5%35.4%
Adjusted EBITDA:
Performance and Risk 102,595 99,549 94,182 3.1% 8.9%
Margin49.4%50.9%47.5%
Governance 5,317 7,446 7,725 (28.6%) (31.2%)
Margin17.2%24.0%24.9%
Total Adjusted EBITDA$107,912$106,995$101,9070.9%5.9%
Margin45.2%47.2%44.5%

Table 9: Summary Six Months Segment Information (unaudited)

Six Months Ended % Change from
In thousands

June 30,
2012

June 30,
2011

June 30,
2011

Revenues:
Performance and Risk $ 405,665 $ 387,558 4.7%
Governance 61,952 62,223 (0.4%)
Total Operating revenues$467,617$449,7814.0%
Operating Income:
Performance and Risk 163,455 152,501 7.2%
Margin40.3%39.3%
Governance 4,645 5,619 (17.3%)
Margin7.5%9.0%
Total Operating Income$168,100$158,1206.3%
Margin35.9%35.2%
Adjusted EBITDA:
Performance and Risk 196,779 194,510 1.2%
Margin48.5%50.2%
Governance 13,040 16,959 (23.1%)
Margin21.0%27.3%
Total Adjusted EBITDA$209,819$211,469(0.8%)
Margin44.9%47.0%

Table 10: Key Operating Metrics1 (unaudited)

As of % Change from

Dollars in thousands

June 30,
2012

June 30,
2011

March 31,
2012

June 30,
2011

March 31,
2012

Run Rates1
Index and ESG products
Subscription $ 285,604 $ 257,470 $ 278,541 10.9% 2.5%
Asset based fees 129,045 140,144 136,962 (7.9%) (5.8%)
Index and ESG products total 414,649 397,614 415,503 4.3% (0.2%)
Risk management analytics 258,995 249,048 257,973 4.0% 0.4%
Portfolio management analytics 117,153 118,452 117,751 (1.1%) (0.5%)
Energy and commodity analytics 14,839 15,074 14,926 (1.6%) (0.6%)
Total Performance and Risk 805,636 780,188 806,153 3.3% (0.1%)
Governance 113,976 107,755 113,054 5.8% 0.8%
Total Run Rate $ 919,612 $ 887,943 $ 919,207 3.6% 0.0%
Subscription total $ 790,567 $ 747,799 $ 782,245 5.7% 1.1%
Asset-based fees total 129,045 140,144 136,962 (7.9%) (5.8%)
Total Run Rate $ 919,612 $ 887,943 $ 919,207 3.6% 0.0%
Subscription Run Rate by region
% Americas 53% 52% 53%
% non-Americas 47% 48% 47%
New Recurring Subscription Sales $ 28,453 $ 30,298 $ 33,506 (6.1%) (15.1%)
Subscription Cancellations (17,229) (14,965) (13,498) 15.1% 27.6%
Net New Recurring Subscription Sales $ 11,224 $ 15,333 $ 20,008 (26.8%) (43.9%)
Non-recurring sales $ 5,099 $ 8,415 $ 9,339 (39.4%) (45.4%)
Employees 2,384 2,133 2,465 11.8% (3.3%)
% Employees by location
Developed Market Centers 58% 65% 60%
Emerging Market Centers 42% 35% 40%

1 The run rate at a particular point in time represents the forward-looking fees for the next 12 months from all subscriptions and investment product licenses we currently provide to our clients under renewable contracts assuming all contracts that come up for renewal are renewed and assuming then-current exchange rates. For any subscription or license whose fees are linked to an investment product’s assets or trading volume, the run rate calculation reflects an annualization of the most recent periodic fee earned under such license or subscription. The run rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we remove from the run rate the fees associated with any subscription or investment product license agreement with respect to which we have received a notice of termination or non-renewal during the period and we have determined that such notice evidences the client's final decision to terminate or not renew the applicable subscription or agreement, even though the notice is not effective until a later date.

Table 11: ETF Assets Linked to MSCI Indices1 (unaudited)

Three Months Ended 2011 Three Mths Ended 2012 Six Months
In Billions March June September December March June June 2011 June 2012
Beginning Period AUM in ETFs linked to MSCI Indices $ 333.3 $ 350.1 $ 360.5 $ 290.1 $ 301.6 $ 354.7 $ 333.3 $ 301.6
Cash Inflow/ Outflow 6.7 14.2 (0.0) 1.0 15.2 0.3 20.9 15.5
Appreciation/Depreciation 10.1 (3.8) (70.4) 10.5 37.9 (27.6) 6.3 10.3
Period End AUM in ETFs linked to MSCI Indices $ 350.1 $ 360.5 $ 290.1 $ 301.6 $ 354.7 $ 327.4 $ 360.5 $ 327.4
Period Average AUM in ETFs linked to MSCI Indices $ 337.6 $ 356.8 $ 329.1 $ 305.0 $ 341.0 $ 331.6 $ 348.1 $ 336.4

1 ETF assets under management calculation methodology is ETF net asset value multiplied by shares outstanding. Source: Bloomberg and MSCI

Table 12: Supplemental Operating Metrics (unaudited)

Recurring Subscription Sales & Subscription Cancellations

Three Months Ended 2011 Three Mths Ended 2012 Six Months Ended
March June September December March June June 2011 June 2012
New Recurring Subscription Sales $34,612 $30,298 $31,661 $35,444 $33,506 $28,453 $64,910 $61,959
Subscription Cancellations (14,402) (14,965) (15,364) (27,245) (13,498) (17,229) (29,367) (30,727)
Net New Recurring Subscription Sales $20,210 $15,333 $16,297 $8,199 $20,008 $11,224 $35,543 $31,232
Non-recurring sales 13,647 8,415 6,560 7,460 9,338 5,099 22,062 14,437
Total Sales $48,259 $38,713 $38,221 $42,904 $42,844 $33,552 $86,972 $76,396

Aggregate & Core Retention Rates

Three Months Ended 2011 Three Mths Ended 2012 Six Months Ended
March June September December March June June 2011 June 2012
Aggregate Retention Rate 1
Index and ESG products 95.0% 92.8% 95.2% 89.3% 94.5% 94.9% 93.9% 94.7%
Risk management analytics 94.2% 92.2% 92.1% 80.8% 93.9% 90.0% 93.0% 91.9%
Portfolio management analytics 88.6% 91.4% 86.6% 87.2% 91.9% 84.2% 90.0% 88.0%
Energy & commodity analytics 76.9% 88.8% 89.3% 75.0% 90.2% 85.5% 82.9% 87.8%
Total Performance and Risk93.0%92.2%92.2%85.2%93.7%90.9%92.5%92.2%
Total Governance85.0%90.4%86.2%80.6%88.7%92.1%87.7%90.4%
Total Aggregate Retention Rate 91.8%91.9%91.3%84.5%93.0%91.0%91.8%92.0%
Core Retention Rate 1
Index and ESG products 95.2% 92.8% 95.2% 89.3% 94.6% 95.0% 94.0% 94.8%
Risk management analytics 94.2% 92.7% 92.1% 81.0% 94.0% 92.0% 93.5% 92.9%
Portfolio management analytics 89.9% 93.2% 88.3% 88.3% 92.2% 87.0% 91.5% 89.6%
Energy & commodity analytics 76.9% 88.8% 91.3% 75.0% 90.7% 85.5% 82.9% 88.1%
Total Performance and Risk93.4%92.7%92.6%85.5%93.8%92.2%93.0%93.0%
Total Governance85.0%90.4%86.3%80.6%88.7%92.2%87.7%90.4%
Total Core Retention Rate 92.1%92.4%91.6%84.8%93.1%92.2%92.2%92.6%

1The quarterly Aggregate Retention Rates are calculated by annualizing the cancellations for which we have received a notice of termination or non-renewal during the quarter and we have determined that such notice evidences the client’s final decision to terminate or not renew the applicable subscription or 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 quarter. The Aggregate Retention Rate is computed on a product-by-product basis. Therefore, if a client reduces the number of products to which it subscribes or switches between our products, we treat it as a cancellation. In addition, we treat any reduction in fees resulting from renegotiated contracts as a cancellation in the calculation to the extent of the reduction. For the calculation of the Core Retention Rate the same methodology is used except the amount of cancellations in the quarter is reduced by the amount of product swaps.

Table 13: Reconciliation of Adjusted EBITDA to Net Income (unaudited)

Three Months Ended June 30, 2012Three Months Ended June 30, 2011

Performance
and Risk

Governance Total

Performance
and Risk

Governance Total
Net income $ 37,546 $ 45,660
Plus: Provision for income taxes 19,715 23,982
Plus: Other expense (income), net 29,860 13,049
Operating income$85,980$1,141$87,121$79,855$2,836$82,691
Plus: Non-recurring stock-based comp 172 20 192 2,508 165 2,673
Plus: Depreciation and amortization 3,817 845 4,662 4,041 1,127 5,168
Plus: Amortization of intangible assets 12,639 3,320 15,959 13,073 3,350 16,423
Plus: Restructuring costs (13) (9) (22) 72 (32) 40
Adjusted EBITDA$102,595$5,317$107,912$99,549$7,446$106,995
Six Months Ended June 30, 2012Six Months Ended June 30, 2011

Performance
and Risk

Governance Total

Performance
and Risk

Governance Total
Net income $ 81,512 $ 79,181
Plus: Provision for income taxes 43,988 43,805
Plus: Other expense (income), net 42,600 35,134
Operating income$163,455$4,645$168,100$152,501$5,619$158,120
Plus: Non-recurring stock-based comp 696 78 774 5,186 299 5,485
Plus: Depreciation and amortization 7,382 1,696 9,078 8,020 2,258 10,278
Plus: Amortization of intangible assets 25,278 6,640 31,918 26,415 6,700 33,115
Plus: Restructuring costs (32) (19) (51) 2,388 2,083 4,471
Adjusted EBITDA$196,779$13,040$209,819$194,510$16,959$211,469

Table 14: Reconciliation of Adjusted Net Income and Adjusted EPS to Net Income and EPS (unaudited)

Three Months EndedSix Months Ended

June 30,
2012

June 30,
2011

March 31,
2012

June 30,
2012

June 30,
2011

GAAP - Net income $ 37,546 $ 45,660 $ 43,966 $ 81,512 $ 79,181
Plus: Non-recurring stock-based comp 192 2,673 582 774 5,485
Plus: Amortization of intangible assets 15,959 16,423 15,959 31,918 33,115
Plus: Debt repayment and refinancing expenses 20,639 - - 20,639 6,404
Plus: Restructuring costs (22) 40 (29) (51) 4,471
Less: Income tax effect (12,775) (6,590) (5,873) (18,648) (17,622)
Adjusted net income$61,539$58,206$54,605$116,144$111,034
Diluted EPS$0.30$0.37$0.35$0.66$0.64
Plus: Non-recurring stock-based comp 0.00 0.02 0.01 0.01 0.04
Plus: Amortization of intangible assets 0.13 0.13 0.13 0.26 0.27
Plus: Debt repayment and refinancing expenses 0.17 - - 0.17 0.05
Plus: Restructuring costs (0.00) 0.00 (0.00) (0.01) 0.04
Less: Income tax effect (0.10) (0.05) (0.05) (0.15) (0.14)
Adjusted EPS$0.50$0.47$0.44$0.94$0.90

Contacts:

MSCI Inc.
MSCI, New York
Edings Thibault, + 1.212.804.5273
or
For media inquiries:
Abernathy MacGregor, New York
Patrick Clifford | Nick Connors
1.212.371.5999
or
MHP Communications, London
Sally Todd | Jennifer Spivey
+ 44.20.3128.8100
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