MSCI(MSCI) - 2023 Q4 - Annual Report

Part I Business MSCI Inc. provides critical decision support tools to the global investment community, operating through four segments with BlackRock as its largest client - MSCI provides critical decision support tools and solutions including indexes, analytics, ESG and climate solutions, and private asset data to the global investment community[16][18] - As of December 31, 2023, MSCI served approximately 7,000 clients in over 95 countries; BlackRock was the largest client, accounting for 9.8% of consolidated operating revenues for the year[20] - The company's growth strategy includes executing strategic acquisitions, highlighted by the recent completion of the acquisition of The Burgiss Group, LLC ("Burgiss"), a provider of private capital investment decision support tools[26] Segments MSCI operates through Index, Analytics, ESG and Climate, and All Other – Private Assets segments, with Index being the largest contributor to FY2023 revenues Revenue Contribution by Segment (FY 2023) | Segment | Revenue Contribution | Source Chunk | | :--- | :--- | :--- | | Index | 57.4% | [33] | | Analytics | 24.4% | [41] | | ESG and Climate | 11.4% | [48] | | All Other – Private Assets | 6.9% | [53] | - On October 2, 2023, the company acquired the remaining 66.4% interest in Burgiss, which is now part of the All Other – Private Assets segment under Private Capital Solutions[28] Competition MSCI faces intense competition across its Index, Analytics, ESG and Climate, and private assets segments from various industry players - Index Competitors: S&P Dow Jones Indices LLC, FTSE Russell, Solactive AG, Nasdaq Inc, and Bloomberg Finance L.P.[58] - Analytics Competitors: Axioma (part of SimCorp), BlackRock Solutions, Bloomberg, and FactSet Research Systems Inc.[60] - ESG and Climate Competitors: Sustainalytics Holding B.V. (part of Morningstar, Inc.), Institutional Shareholder Services Inc., Trucost (an S&P Global Inc. business), Refinitiv, Bloomberg and Moody's Corporation[61] Human Capital Management As of December 31, 2023, MSCI employed 5,794 people globally, with a focus on diversity, equity, and inclusion and a hybrid work model Employee Statistics (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Total Employees | 5,794 | | % in Asia Pacific | 46.2% | | % in EMEA | 26.9% | | % in U.S. & Canada | 18.8% | | % in Mexico & Brazil | 8.1% | | Voluntary Turnover (1-yr) | 7.3% | | Involuntary Turnover (1-yr) | 2.8% | - As of December 31, 2023, women represented 34.3% of the global workforce and 26.2% of global employees in management roles[73] - In the December 2023 employee engagement survey, MSCI achieved an 82% response rate, with 75% of respondents characterized as fully engaged[83] Government Regulation MSCI is subject to global regulations, with subsidiaries authorized as benchmark administrators in the UK and Germany, and an SEC-registered investment adviser in the US - MSCI Limited (UK) and MSCI Deutschland GmbH (Germany) are authorized benchmark administrators under UK FCA and German BaFin regulations, respectively[88] - MSCI ESG Research LLC is a registered investment adviser and must comply with the U.S. Investment Advisers Act of 1940, including disclosure, recordkeeping, and marketing restrictions[89] Risk Factors MSCI faces significant operational, client, technology, and regulatory risks, including dependence on third-party data, client concentration, cybersecurity threats, and evolving benchmark regulations - Operational risks include dependence on third-party data suppliers, potential for undetected errors in products, and reputational damage from perceived conflicts of interest or methodological disagreements[105][108][113] - Client risks are significant, with the largest client, BlackRock, accounting for 9.8% of consolidated operating revenues in 2023, and the risk of clients negotiating lower asset-based fees or ceasing to use MSCI indexes[123][126] - Technology risks involve potential failures or disruptions in IT systems, failure to protect confidential data, and vulnerability to increasingly sophisticated cyber-attacks[131][135][138] - Legal and regulatory risks include failure to comply with complex global regulations, particularly those affecting benchmarks (e.g., EU BMR) and the emerging regulation of ESG ratings providers[158][161][163] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments to be disclosed[206] Cybersecurity MSCI maintains an enterprise-wide information security program overseen by its CISO and Board, with no material incidents identified in the last three fiscal years - The company has an enterprise-wide information security program managed by the Chief Information Security Officer (CISO) and based on industry standards like NIST and ISO 27001[207][209] - The Audit and Risk Committee of the Board of Directors is responsible for oversight of cybersecurity threats and receives quarterly updates from the CISO[217] - In the last three fiscal years, MSCI has not identified any material cybersecurity incidents or risks that have materially affected its business, results of operations, or financial condition[215] Properties MSCI's principal offices are leased properties globally, with major locations in New York, Budapest, and Mumbai, deemed adequate for current operations Principal Leased Properties (as of Dec 31, 2023) | Location | Square Feet | Expiration Date | | :--- | :--- | :--- | | New York, New York | 125,811 | Feb 28, 2033 | | Budapest, Hungary | 70,833 | Feb 28, 2029 | | Mumbai, India | 63,143 | Jul 31, 2032 | | Monterrey, Mexico | 56,213 | Oct 31, 2028 | | London, England | 30,519 | Dec 25, 2026 | Legal Proceedings Management believes that pending legal proceedings will not materially affect MSCI's business, operating results, financial condition, or cash flows - Management believes that pending legal proceedings will not, individually or in the aggregate, have a material effect on the company's business, financial condition, or cash flows[221] Mine Safety Disclosures This item is not applicable to the company - Not applicable[222] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MSCI's common stock trades on the NYSE, with an active stock repurchase program and a five-year stock performance outperforming key indices Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | Oct 2023 | 52 | $523.17 | $845,668,000 | | Nov 2023 | 63 | $526.57 | $845,668,000 | | Dec 2023 | 0 | $— | $845,668,000 | | Total | 115 | $525.03 | $845,668,000 | Five-Year Stock Performance (Value of $100 Investment) | Year End | MSCI Inc. | S&P 500 | MSCI USA Financials Index | | :--- | :--- | :--- | :--- | | 2018 | $100 | $100 | $100 | | 2019 | $177 | $131 | $133 | | 2020 | $309 | $156 | $130 | | 2021 | $427 | $200 | $177 | | 2022 | $327 | $164 | $155 | | 2023 | $402 | $207 | $178 | Management's Discussion and Analysis of Financial Condition and Results of Operations MSCI reported strong FY2023 financial results with 12.5% revenue growth to $2.53 billion, 31.9% net income increase to $1.15 billion, and 14.5% Adjusted EBITDA growth to $1.52 billion, boosted by the Burgiss acquisition Key Financial Results (FY 2023 vs FY 2022) | Metric (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $2,528,920 | $2,248,598 | 12.5% | | Operating Income | $1,384,609 | $1,207,640 | 14.7% | | Net Income | $1,148,592 | $870,573 | 31.9% | | Adjusted EBITDA | $1,522,951 | $1,329,671 | 14.5% | - The acquisition of the remaining 66.4% of Burgiss on October 2, 2023, resulted in a non-taxable gain of $143.0 million from the remeasurement of the company's existing equity method investment[279][305] - Total Run Rate increased by 15.8% to $2.69 billion as of December 31, 2023, driven by a 16.0% increase in recurring subscriptions and a 14.9% increase in asset-based fees[326] Results of Operations In FY2023, total operating revenues increased 12.5% to $2.53 billion, driven by recurring subscriptions and non-recurring revenues, leading to a 31.9% rise in net income to $1.15 billion Operating Revenues by Type (FY 2023 vs FY 2022) | Revenue Type (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Recurring subscriptions | $1,871,290 | $1,659,523 | 12.8% | | Asset-based fees | $557,502 | $528,127 | 5.6% | | Non-recurring | $100,128 | $60,948 | 64.3% | | Total operating revenues | $2,528,920 | $2,248,598 | 12.5% | Operating Expenses by Activity (FY 2023 vs FY 2022) | Expense Category (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Cost of revenues | $446,581 | $404,341 | 10.4% | | Selling and marketing | $276,204 | $264,583 | 4.4% | | Research and development | $132,121 | $107,205 | 23.2% | | General and administrative | $153,967 | $146,857 | 4.8% | | Amortization of intangible assets | $114,429 | $91,079 | 25.6% | | Depreciation and amortization | $21,009 | $26,893 | (21.9%) | | Total operating expenses | $1,144,311 | $1,040,958 | 9.9% | - The effective tax rate for 2023 was 16.1%, down from 16.6% in 2022, benefiting from the non-taxable gain on Burgiss and other favorable discrete items[306] Segment Results All segments reported revenue growth in FY2023, with ESG and Climate showing the highest growth at 26.0% and All Other – Private Assets significantly boosted by the Burgiss acquisition Segment Performance (FY 2023) | Segment | Operating Revenues (in millions) | YoY Growth | Adjusted EBITDA (in millions) | YoY Growth | Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Index | $1,451.8 | 11.4% | $1,107.0 | 12.3% | 76.2% | | Analytics | $616.0 | 6.9% | $274.9 | 10.9% | 44.6% | | ESG and Climate | $287.6 | 26.0% | $91.7 | 50.1% | 31.9% | | All Other - Private Assets | $173.6 | 23.1% | $49.4 | 40.1% | 28.5% | - Index segment revenue growth was driven by strong performance in recurring subscriptions (+11.6%) and non-recurring revenues (+75.7%), along with a 5.6% increase in asset-based fees[312] - All Other – Private Assets revenue growth of 23.1% was primarily driven by the acquisition of Burgiss; adjusting for this, the segment's revenue would have increased by 5.7%[322] Operating Metrics MSCI's total Run Rate reached $2.69 billion as of December 31, 2023, a 15.8% increase, while net new recurring subscription sales decreased, and the overall Retention Rate was 94.7% Run Rate by Segment (as of Dec 31, 2023) | Segment (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Index | $1,452,238 | $1,291,886 | 12.4% | | Analytics | $661,922 | $616,069 | 7.4% | | ESG and Climate | $319,324 | $267,019 | 19.6% | | All Other - Private Assets | $252,677 | $145,333 | 73.9% | | Total Run Rate | $2,686,161 | $2,320,307 | 15.8% | - Net new recurring subscription sales for 2023 were $183.1 million, a 12.8% decrease from $210.0 million in 2022, driven by a 39.8% decline in ESG and Climate net new sales[333] - The overall Retention Rate for 2023 was 94.7%, compared to 95.2% in 2022, with the All Other - Private Assets segment showing the lowest rate at 90.4%[335] Liquidity and Capital Resources MSCI's cash and equivalents decreased to $461.7 million due to the Burgiss acquisition and share repurchases, while the company generated $1.24 billion from operations and increased its quarterly dividend Cash Flow Summary (FY 2023 vs FY 2022) | Cash Flow (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,236,029 | $1,095,369 | | Net cash used in investing activities | ($819,378) | ($79,335) | | Net cash used in financing activities | ($953,931) | ($1,425,380) | | Net decrease in cash | ($531,871) | ($427,885) | - As of December 31, 2023, the company had an aggregate of $4.2 billion in Senior Notes and $339.1 million in Tranche A Term Loans outstanding[343] - On January 26, 2024, the company amended its credit agreement, increasing its revolving credit facility to $1.25 billion and used it to repay all outstanding term loans[344] - The Board of Directors declared a quarterly cash dividend of $1.60 per share for Q1 2024, a 15.9% increase over the prior quarter[356] Quantitative and Qualitative Disclosures About Market Risk MSCI is exposed to foreign currency exchange risk, affecting 16.7% of revenues and 42.4% of operating expenses in 2023, primarily from Euros, British pounds, and Japanese yen - In 2023, 16.7% of revenues were subject to foreign currency risk, primarily from the Euro (41.9%), British pound (32.5%), and Japanese yen (17.7%)[369] - Approximately 42.4% of operating expenses for 2023 were denominated in foreign currencies, mainly British pounds, Indian rupees, Euros, Hungarian forints, Mexican pesos, and Swiss francs[371] Financial Statements and Supplementary Data This section presents MSCI's audited consolidated financial statements for FY2023, including balance sheets, income statements, and cash flows, with an unqualified opinion from PricewaterhouseCoopers LLP Consolidated Statements of Financial Condition As of December 31, 2023, total assets increased to $5.52 billion, driven by the Burgiss acquisition, while total liabilities rose to $6.26 billion, and shareholders' deficit improved to ($739.8) million Key Balance Sheet Items (as of Dec 31) | Account (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $461,693 | $993,564 | | Goodwill | $2,887,692 | $2,229,670 | | Intangible assets, net | $956,234 | $558,517 | | Total assets | $5,518,219 | $4,997,535 | | Deferred revenue (current) | $1,083,864 | $882,886 | | Long-term debt | $4,496,826 | $4,503,233 | | Total liabilities | $6,257,983 | $6,005,460 | | Total shareholders' equity (deficit) | ($739,764) | ($1,007,925) | Consolidated Statements of Income For FY2023, operating revenues reached $2.53 billion, operating income $1.38 billion, and net income significantly increased to $1.15 billion, boosted by a $143.0 million gain from the Burgiss remeasurement Income Statement Summary (FY 2023 vs FY 2022) | Account (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Operating revenues | $2,528,920 | $2,248,598 | | Total operating expenses | $1,144,311 | $1,040,958 | | Operating income | $1,384,609 | $1,207,640 | | Gain on remeasurement of equity method investment | $143,029 | $0 | | Income before provision for income taxes | $1,369,061 | $1,043,841 | | Net income | $1,148,592 | $870,573 | | Diluted EPS | $14.39 | $10.72 | Notes to Consolidated Financial Statements The notes detail MSCI's accounting policies, segment revenue, the Burgiss acquisition gain, debt structure, capital return activities, and tax provision, with BlackRock as a key customer Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[549] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, excluding recently acquired entities - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[551] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, excluding the recently acquired Burgiss Group, LLC and Trove Research Ltd[555] Other Information On February 8, 2024, MSCI's Board amended bylaws to allow stockholders holding at least 15% of voting power for one year to call a special meeting - On February 8, 2024, the Board amended the company's bylaws to permit stockholders holding at least 15% of voting power for one year to call a special meeting[559] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Proxy Statement - Information responsive to this item is incorporated by reference from the company's Proxy Statement, to be filed within 120 days of December 31, 2023[565] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Proxy Statement - Information responsive to this item is incorporated by reference from the company's Proxy Statement, to be filed within 120 days of December 31, 2023[567] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference, with 1,440,277 securities issuable under approved equity compensation plans as of December 31, 2023 Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Approved by Security Holders | 1,440,277 | $552.18 (PSOs only) | 3,124,818 | | Not Approved by Security Holders | 0 | N/A | 0 | | Total | 1,440,277 | N/A | 3,124,818 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 Proxy Statement - Information responsive to this item is incorporated by reference from the company's Proxy Statement, to be filed within 120 days of December 31, 2023[574] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Proxy Statement - Information responsive to this item is incorporated by reference from the company's Proxy Statement, to be filed within 120 days of December 31, 2023[575] Part IV Exhibit and Financial Statement Schedules This section lists financial statements provided in Item 8, confirms no schedules are required, and includes an index of all exhibits filed with the Form 10-K - The financial statements are provided under Part II, Item 8; no financial statement schedules are provided[579][580] Form 10-K Summary The company has not provided a summary for the Form 10-K - None[587]