MSCI(MSCI) - 2023 Q2 - Quarterly Report

Part I Financial Statements This section presents unaudited condensed consolidated financial statements and notes, highlighting BlackRock, Inc. as a key revenue contributor Condensed Consolidated Statements of Financial Condition (in thousands) | | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,524,185 | $1,747,974 | | Total assets | $4,762,828 | $4,997,535 | | Total current liabilities | $1,218,125 | $1,250,527 | | Total liabilities | $5,956,496 | $6,005,460 | | Total shareholders' equity (deficit) | ($1,193,668) | ($1,007,925) | | Total liabilities and shareholders' equity (deficit) | $4,762,828 | $4,997,535 | Condensed Consolidated Statements of Income (in thousands, except per share data) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $621,157 | $551,806 | $1,213,375 | $1,111,751 | | Operating income | $345,953 | $300,381 | $660,555 | $589,359 | | Net income | $246,825 | $210,587 | $485,553 | $439,010 | | Diluted EPS | $3.09 | $2.59 | $6.05 | $5.37 | Condensed Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $555,945 | $456,873 | | Net cash used in investing activities | ($48,430) | ($34,413) | | Net cash used in financing activities | ($712,052) | ($982,936) | | Net decrease in cash, cash equivalents and restricted cash | ($201,235) | ($579,149) | | Cash, cash equivalents and restricted cash, end of period | $792,329 | $842,300 | - For the six months ended June 30, 2023, BlackRock, Inc. accounted for 10.0% of the Company's consolidated operating revenues and 16.9% of the Index segment's operating revenues[37] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis covers Q2 and H1 2023 financial condition and results, highlighting revenue growth, profitability, operating metrics, and capital resources Results of Operations Operating revenues grew 12.6% to $621.2 million in Q2 2023, driven by recurring subscriptions and non-recurring revenues, resulting in a 17.2% net income increase Operating Revenues by Type (in thousands) | Revenue Type | Three Months Ended June 30, 2023 | % Change YoY | Six Months Ended June 30, 2023 | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Recurring subscriptions | $455,692 | 12.0% | $900,939 | 11.7% | | Asset-based fees | $138,162 | 4.5% | $271,288 | (2.2%) | | Non-recurring | $27,303 | 117.7% | $41,148 | 48.7% | | Total operating revenues | $621,157 | 12.6% | $1,213,375 | 9.1% | Operating Expenses by Activity (in thousands) | Expense Category | Three Months Ended June 30, 2023 | % Change YoY | Six Months Ended June 30, 2023 | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Cost of revenues | $110,066 | 9.2% | $218,713 | 7.5% | | Selling and marketing | $67,988 | 11.3% | $134,463 | 5.8% | | Research and development | $30,140 | 26.0% | $61,463 | 17.7% | | General and administrative | $35,657 | (2.9%) | $76,701 | (6.8%) | | Amortization of intangible assets | $26,154 | 17.9% | $50,821 | 15.8% | | Depreciation and amortization | $5,199 | (23.1%) | $10,659 | (19.9%) | | Total operating expenses | $275,204 | 9.5% | $552,820 | 5.8% | - Net income increased 17.2% to $246.8 million for Q2 2023 and 10.6% to $485.6 million for the six months ended June 30, 2023[142] Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased 13.9% to $377.3 million in Q2 2023, with the margin expanding to 60.7%, and a reconciliation from net income is included Adjusted EBITDA and Margin (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $377,306 | $331,144 | $722,035 | $649,688 | | % Change YoY | 13.9% | | 11.1% | | | Adjusted EBITDA margin % | 60.7% | 60.0% | 59.5% | 58.4% | Reconciliation of Net Income to Adjusted EBITDA (Q2 2023, in thousands) | | Amount | | :--- | :--- | | Net income | $246,825 | | Provision for income taxes | $60,333 | | Other expense (income), net | $38,795 | | Operating income | $345,953 | | Amortization of intangible assets | $26,154 | | Depreciation and amortization | $5,199 | | Acquisition-related costs | $0 | | Consolidated Adjusted EBITDA | $377,306 | Segment Results All four reportable segments, Index, Analytics, ESG and Climate, and All Other – Private Assets, demonstrated revenue and Adjusted EBITDA growth in Q2 2023 Segment Performance (Three Months Ended June 30, 2023) | Segment | Operating Revenues (in thousands) | % Change YoY | Adjusted EBITDA (in thousands) | % Change YoY | Adjusted EBITDA Margin % | | :--- | :--- | :--- | :--- | :--- | :--- | | Index | $362,316 | 12.9% | $277,070 | 13.0% | 76.5% | | Analytics | $149,881 | 5.8% | $65,149 | 3.5% | 43.5% | | ESG and Climate | $71,219 | 29.2% | $22,798 | 59.1% | 32.0% | | All Other - Private Assets | $37,741 | 10.9% | $12,289 | 41.6% | 32.6% | - Index segment revenue growth in Q2 was driven by strong performance in recurring subscriptions (+11.7%) and a 159.8% increase in non-recurring revenues[152][153] - ESG and Climate segment revenue grew 29.2% in Q2, primarily from strong growth in recurring subscriptions (+29.6%) related to Ratings, Climate, and Screening products[164][165] Operating Metrics Key operating metrics indicate total Run Rate grew 10.7% to $2.45 billion, while net new recurring subscription sales decreased 15.0%, and Retention Rate remained stable at 95.5% Run Rate by Segment (as of June 30, 2023, in thousands) | Segment | Run Rate | % Change YoY | | :--- | :--- | :--- | | Index | $1,376,194 | 9.9% | | Analytics | $631,218 | 6.6% | | ESG and Climate | $291,802 | 26.2% | | All Other - Private Assets | $150,587 | 9.3% | | Total Run Rate | $2,449,801 | 10.7% | Net New Recurring Subscription Sales (in thousands) | | Three Months Ended June 30, 2023 | % Change YoY | Six Months Ended June 30, 2023 | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Total | $47,897 | (15.0%) | $82,534 | (18.2%) | Retention Rate | Segment | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Index | 95.8% | 95.9% | | Analytics | 95.2% | 94.3% | | ESG and Climate | 96.9% | 97.3% | | All Other - Private Assets | 92.8% | 96.0% | | Total | 95.5% | 95.5% | Liquidity and Capital Resources The company maintains strong liquidity from operations, cash balances, and an undrawn credit facility, supporting share repurchases and dividend payments - As of June 30, 2023, the company had an aggregate of $4.2 billion in Senior Notes and $343.4 million in Tranche A Term Loans outstanding, with $500 million of undrawn borrowing capacity under its revolving credit facility[190] Share Repurchases (in thousands, except per share data) | Period | Average Price Paid Per Share | Total Number of Shares Repurchased | Dollar Value of Shares Repurchased | | :--- | :--- | :--- | :--- | | Six Months Ended June 30, 2023 | $468.31 | 941 | $440,847 | | Six Months Ended June 30, 2022 | $480.68 | 2,184 | $1,049,651 | - On July 24, 2023, the Board of Directors declared a quarterly cash dividend of $1.38 per share[198] - Cash and cash equivalents were $792.3 million as of June 30, 2023, down from $993.6 million at December 31, 2022[199][201] Quantitative and Qualitative Disclosures About Market Risk The company faces significant foreign currency exchange risk impacting revenues, operating expenses, and asset-based fees, partially managed with derivative financial instruments - For the six months ended June 30, 2023, 16.8% of revenues were subject to foreign currency risk, primarily in Euros (42.2%), British pounds sterling (31.3%), and Japanese yen (18.0%)[207] - Approximately 43.5% of operating expenses for the six months ended June 30, 2023, were denominated in foreign currencies[209] - A substantial portion of asset-based fees are based on investment products where approximately three-fifths of the assets are invested in securities denominated in currencies other than the U.S. dollar, creating additional currency exposure[208] Controls and Procedures The CEO and CFO concluded disclosure controls were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[211] - There were no changes in internal control over financial reporting during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[212] Part II Legal Proceedings Management believes that the disposition of pending legal matters will not materially affect the company's financial condition, operating results, or cash flows - Based on currently available facts, management believes that the disposition of pending or asserted legal matters will not, individually or in the aggregate, have a material effect on MSCI's business, operating results, financial condition or cash flows[214] Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, have been reported - There have been no material changes to the risk factors and uncertainties disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2022[216] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased approximately 941,000 shares for $440.8 million during Q2 2023, with $863.5 million remaining under the repurchase authorization Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | | April 2023 | 141,617 | $466.61 | $1,238,436,000 | | May 2023 | 684,896 | $468.74 | $918,220,000 | | June 2023 | 117,632 | $468.18 | $863,542,000 | | Total | 944,145 | $468.35 | $863,542,000 | - As of June 30, 2023, there was $863.5 million of available authorization remaining under the 2022 Repurchase Program[63][197] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, management compensation plans, and required CEO and CFO certifications - The report includes an exhibit index listing all documents filed, such as the CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL files (Exhibit 101 series)[222]